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Poll: Power pledge
Is Mr. President's promise of additional 6,000 MW of electricity in 18 months achievable?
Government aims at less role in power
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President Umaru Yar’Adua with Rex Tillerson, chairman, Exxonmobil, during the latter’s visit to the State House in Abuja, weekend.
The Federal Government is making a major shift in approach to resolving the nation’s power crisis by creating a major role for the private sector, according to finance minister, Shamsudeen Usman.
Two weeks ago, the presidential committee on power completed its work three days ahead of schedule but the minister will not say if the government’s new thinking flowed from the committee’s report which was submitted to the president on Monday March 17 as exclusively report in that day’s edition of Business Day.
“President Yar’Adua will soon announce a novel approach to dealing with the power problem and this approach will have limited role for the government”, Usman told business leaders in Lagos at a post AGM luncheon organised by the Nigerian Economic Summit.
The minister was, however, quick to add that the new policy framework will not amount to an abandonment of the controversial National Integrayed Power Projects (NIPPs) for which the last administration squandered $16 billion, according to some estimates.
“The government will not abandon the NIPPs,” he assured. “We will proceed with their completion but when the president unfolds his programme, you will find that the private sector will be asked to play a leading role.”
Business Day has learnt that the presidential committee on power which conducted what one senior government official in Abuja described as a “quick fire audit” on the NIPPs sees an honest and speedy completion of the plants as the best way to guarantee quick wins for the government and for Nigerians who just want power regardless of whether the power comes from projects initiated by a corrupt regime.
According to our investigation, because the projects were initiated by several agencies in government including the Niger Delta Independent Power Company and Power Holding Company of Nigeria (PHCN) and also because government would need to raise up to $2-3 billion to complete them, the committee suggested the creation of a special purpose vehicle (SPV) to be driven by the private sector as is the case in the highly successful liquefied natural gas sector which is now the envy of the whole world.
According to a senior government source, “the committee reasoned that because the president has said he will not break the law by disbursing funds from the excess crude account like the past administration did, urgently needed funding for the IPPs will have to come from the private sector and you will need an SPV with the credibility to attract private sector funding.”
Our reporters gathered that even if the president were inclined to going back to the excess crude account, the state governors will not let him.
“So the fastest way to complete the IPPs and secure the low hanging fruits”, one source said, “is through borrowed funds. The question is who in the private sector will lend money to a bankrupt PHCN or the controversial Niger Delta power company in the light of the outrageous accounts we now hear of how they blew $16 billion to inflict more darkness on the nation.”
The committee on power expects that the SPV will have the authority of the president to manage all the projects, create tight controls with adequate speed and have as its head a credible figure with independence of mind and who is known not have any ambition to make a career out of the power sector.
Business Day reported three weeks ago the government has asked General Electric of the USA to conduct an audit of the NIPPs and it is understood that this audit will give government an understanding of the extent of work done by the contractors but most importantly, the level of funding required for their speedy completion.
Questions are already being asked how long the president will take to give his pronouncement on the power committee’s report knowing the desperation of Nigerians and their businesses in the face of a total collapse in public power supply.
The president was not just presented with the main report, the committee also gave the president and some of his close aides, a power point presentation of its diagnosis and recommendations and government sources have told Business Day the president was quite impressed.
The committee chaired by the minister of state for power was charged with creating a blueprint for raising power generation capacity to 6,000 megawatts in the next 18 months and 11,000 megawatts by 2011.
Power generation in Nigeria has sunk to an all time low of around 2,500 megawatts at a time China which Nigeria hopes to join in the club of the world’s top 20 economies by 2020, is opening one coal fired power plant a week. The United States which China hopes to overtake as the number one economy, today generates 875,000 megawatts of power from a variety of sources.
If the government goes ahead to roll back its involvement in the power sector, it will be seeking to replicate the success achieved in the telecoms sector but the challenge will remain how to attract to power private sector investment which many acknowledge as perhaps the most critical factor in the celebrated success in telecoms.
As the finance minister told his audience in Lagos, “if Nigerians are unhappy with telephone services today, they do not face the government. They criticise the GSM companies.”
“President Yar’Adua will soon announce a novel approach to dealing with the power problem and this approach will have limited role for the government”, Usman told business leaders in Lagos at a post AGM luncheon organised by the Nigerian Economic Summit.
The minister was, however, quick to add that the new policy framework will not amount to an abandonment of the controversial National Integrayed Power Projects (NIPPs) for which the last administration squandered $16 billion, according to some estimates.
“The government will not abandon the NIPPs,” he assured. “We will proceed with their completion but when the president unfolds his programme, you will find that the private sector will be asked to play a leading role.”
Business Day has learnt that the presidential committee on power which conducted what one senior government official in Abuja described as a “quick fire audit” on the NIPPs sees an honest and speedy completion of the plants as the best way to guarantee quick wins for the government and for Nigerians who just want power regardless of whether the power comes from projects initiated by a corrupt regime.
According to our investigation, because the projects were initiated by several agencies in government including the Niger Delta Independent Power Company and Power Holding Company of Nigeria (PHCN) and also because government would need to raise up to $2-3 billion to complete them, the committee suggested the creation of a special purpose vehicle (SPV) to be driven by the private sector as is the case in the highly successful liquefied natural gas sector which is now the envy of the whole world.
According to a senior government source, “the committee reasoned that because the president has said he will not break the law by disbursing funds from the excess crude account like the past administration did, urgently needed funding for the IPPs will have to come from the private sector and you will need an SPV with the credibility to attract private sector funding.”
Our reporters gathered that even if the president were inclined to going back to the excess crude account, the state governors will not let him.
“So the fastest way to complete the IPPs and secure the low hanging fruits”, one source said, “is through borrowed funds. The question is who in the private sector will lend money to a bankrupt PHCN or the controversial Niger Delta power company in the light of the outrageous accounts we now hear of how they blew $16 billion to inflict more darkness on the nation.”
The committee on power expects that the SPV will have the authority of the president to manage all the projects, create tight controls with adequate speed and have as its head a credible figure with independence of mind and who is known not have any ambition to make a career out of the power sector.
Business Day reported three weeks ago the government has asked General Electric of the USA to conduct an audit of the NIPPs and it is understood that this audit will give government an understanding of the extent of work done by the contractors but most importantly, the level of funding required for their speedy completion.
Questions are already being asked how long the president will take to give his pronouncement on the power committee’s report knowing the desperation of Nigerians and their businesses in the face of a total collapse in public power supply.
The president was not just presented with the main report, the committee also gave the president and some of his close aides, a power point presentation of its diagnosis and recommendations and government sources have told Business Day the president was quite impressed.
The committee chaired by the minister of state for power was charged with creating a blueprint for raising power generation capacity to 6,000 megawatts in the next 18 months and 11,000 megawatts by 2011.
Power generation in Nigeria has sunk to an all time low of around 2,500 megawatts at a time China which Nigeria hopes to join in the club of the world’s top 20 economies by 2020, is opening one coal fired power plant a week. The United States which China hopes to overtake as the number one economy, today generates 875,000 megawatts of power from a variety of sources.
If the government goes ahead to roll back its involvement in the power sector, it will be seeking to replicate the success achieved in the telecoms sector but the challenge will remain how to attract to power private sector investment which many acknowledge as perhaps the most critical factor in the celebrated success in telecoms.
As the finance minister told his audience in Lagos, “if Nigerians are unhappy with telephone services today, they do not face the government. They criticise the GSM companies.”
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Comments (11 posted):
The Nigerian government, as irresponsible as it has been the past decades, is still putting it's ugly hands into markets, creating something worse than turbulence. All we need is no PPP, all we need is a total liberalization of the power sector and indeed all other comatose sectors: No licensing, no price-control, very low tax. These 3 things will do the magic within a year that government couldn't do in almost half of a century!
One mistake we nigerians keep making is to judge government policies by their intentions rather than by the results they produce. Of course most government policies have wonderful "intentions", but how many of them are achieved? When government sets out to help the poor through programs like price-control, they end up doing the exact opposite: they hurt the economy and when that happens it's the poor that suffer most.
Open your eyes, government has never been good managing the economy, private enterprises have!!!
If you think that total liberalization(I prefer this term to "deregulation") will increase price, you may be right in the short run, but we all know that nothing brings price down legitimately as competition does(Telecom market a good example). Please government, do the same with Power!
Price control guards against price fixing by sector player. I'll ask you who is the best to decide what the right price to pay is between the masses who will bid low to save expenses the sector player who will ask for high prices to boost profits.
Now to get to my point that you seem to have missed. The issue is that before private enterprise can deploy their investment in power sector they have to be guaranteed returns on investment and assured that the next goverment won't appear and stymie their operations or growth. This guarantee can only be worth the paper it is written on, if backed by the government policies i.e Power Sector Act 2005.
(similar to what Issi Moyosore has iterated )
Without such controls, a company can spring up deciding to offer a unit of electicity at =N=10 today, then six month down the line ask for =N= 25 citing the most used excuse 'their cost has changed'. You can't take that chance with power, Power generation is a very political issue, in ideal economies a goverment won't last more than one term in power if their performance with power generation is lacking.
Do you know that in Western world power generation companies are subsidies by tax rebates?
No where in the world is competition a bad thing. Infact, we owe many of the progresses of the present civilization to good competitions in free market enterprise systems.
The worst effect of price control is it's negative effect on investment, no one is willing to put his money where government will dictate how much he must sell the products( This has been true of our oil industry, gas,until rescently, and the power sector). We've had price control in this sectors for decades, it has hindered new investments and sent out investors that were brave enough to give it a try.
Since government decided to make the gas market freer, haven't you noticed the results? If it can work for gas, why not power??
For your information, I'm not against subsidies, I believe it's one of the ways of keeping up with the pace of investments, but what I'm outrightly against anyday is the idea that by fixing the price of a product, government is doing the poor man great service. That's total falacy as everything around us can show! In the heavily regulated telecom market before 2002, how many poor men had fix-line phones? How many now have mobile phones after the liberalization of the industry?? Does government tell MTN how much a call MUST cost per minute?? Does the poor man not use the service still? Can MTN decide it's call price or is the price fixed by what people can pay for?
If you're not fanatically socialist, I believe the evidence before you should tell you that government must really remove it's hands from the essentials of our economy.
Please read my comments clearly !!!
I am not against competition (I stated i am against totally deregulating the power sector)
I am not a leftish or whatever you call me, I AM ONE OF THOSE THAT BELIEVE THAT THE SOLUTION TO THE NATION NIGERIA IS GOING TO BE ENGINEERED BY THE GENERATION OF PEOPLE (AGED 35 - 5O) PRESENTLY OF WHICH I AM ONE. Frankly speaking i think the generation ahead has failed us.
You stated that "The worst effect of price control is it's negative effect on investment, no one is willing to put his money where government will dictate how much he must sell the products"
Just for your information, i am currently in discussions with foreign investors who have an interest in power generation, the only reason they are yet to commit to Nigerian is because the government has not reviewed the price you can charge for a unit of electricity(Electric Power Reform Act, 2005 )
Why do you think all the Banks in Nigeria haven't flooded the IPP project with money, it's simply becuase at the current price it isn't a profitable business. Not that they can't afford it.
Now with that in mind, i must stress to you that those who generate electricity are different from those who distribute it or get paid for it, (with the new layout i.e breakup of NEPA) if they don't have the government monitoring or assuring the process, the possiblity exist that they (GENCO) will generate electricty and not get paid for it, (when you switch on the light in your room, you can't tell which powerplant generated it), the easiest way to resolve such an issue is ensuring that they get paid for whatever they generate via a contract called a (Power Purchase Agreement) which has to be executed before generation begins.
This simply guarantees that at a particular day, or period irrespective if the man(welder) on the street pays for his electricity, or the soldier in the Barrack pays for the electricity consumed within the barracks, those who invested in building the power plant will get paid.
Now how can you seperate the goverment from influencing the price on that contract since they are the only one who can guarantee it?
Telecoms is a different ball game, most users are pre-payer, but that can work perfectly with power because people can siphon current via illegal connections, once again if that happens the investors loose money/income.
I understand your passion for the power sector failures, but it's quite a perculiar sector that not just anyone can dabble into without appropriate guarantees of success.
At least history has proved that even the government couldn't make it work alone, what gives you the impression that private sector can?
God Help Nigeria.......
The best economies today are those who started with limited government control and small government size relative to GDP. Quoting you:"At least history has proved that even the government couldn't make it work alone, what gives you the impression that private sector can?". One easily notices your profound leftist inclination though you denied it. Governments run on people's money, and the falacy they keep propagating is that they can do good with other people's money. But history is crystal clear in that area:government is a very poor manager. Infact an economist said "Give the government control of the sahara desert and in 5 years there'll be shortage of sand there!". I agree to some extend with him because of the record of government when it comes to handling businesses throughout history.
I'm a student of economist, we consider it almost a fact in economist that a privately run economy is so far the most efficient mecanism for resource allocation. Government is best when it gets involved in only those things for which it was formed in the first place which are: Public Police, Justice and defence of property rights/Enforcement of contracts. Any other thing it tries to get involved in has been a mess.
Coming to your investor-friends, If they choose to come to Nogeria's power sector even while there's price control, then I think the're not acting in the best interest. The mere fact that the current government approved price permit to make a profit is no good reason to enter the market. If they do, they'll soon discover how myopic they were when government decides to slash that price down sometime in the future.
The best thing that can happen to Nigeria(with respect to all sectors)will be:Significant reduction in government ownership/control of companies, low taxes, strong property-right enforcement and light regulation.
Then to understand you well, you seem to be for total private participation but strong enforcement of contracts by the government which I'm absolutely for!
That is why i said the metrics have to be right before they jump in.
Strong enforcement of contracts by government is the right word, that way they'll be doing what they are formed for in the first place to coin your words.
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