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Clearly, the leadership of the two unions in the electricity
industry think that being ideologues with regard to the privatisation of the
successor companies unbundled out of the Power Holding Company of Nigeria
(PHCN) would hold them in good stead with their followership. They are mistaken
as they are threatening the unique opportunities that will be available to the
workers in a liberalized environment in the industry.

This piece seeks to address most of the technical issues raised
so far by the unions. On behalf of the two unions in the industry, Joe Ajaero,
the General Secretary of National Union of Electricity Employees (NUEE), had
contended at a media session that “we see privatisation as jinxed. Besides
that, government has not informed us about the plan to privatise PHCN. Any time
they do, we can give them our position.” Mr. Ajaero added, “If we had been
invited to discuss privatisation or road map, we could have invited them to
take a cue from Nigeria Airways, Delta Steel, Daily Times, NITEL…We are
equally aware of what happened in the communication sector when MTN, Globacom,
Airtel came in, they never bought over NITEL.”

Fine sophistry? But the BPE will not allow the likes of Ajaero
to write its history. At the BPE, we do not claim to be perfect and we do not
pretend to have all the answers. Since 1999, over 120 transactions have been
consummated and only the four mentioned are the sore points. Can Ajaero inform
Nigerians about the successes of Eleme Petrochemical, Oando, Conoil, BCC (now
part of Dangote Cement), National Truck Manufacturing Co; Transcorp Hilton and
others?

On the matter that the unions have not been informed of
government’s intention to privatise PHCN (formerly NEPA), recall that
participation in the privatisation programme which is instituted in law through
the Public Enterprises (Privatization and Commercialization) Act No. 28 of 1999
was given tangible expression by the integration of the Nigeria Labour Congress
(NLC) into the membership of the National Council on Privatisation (NCP) which
is the highest policy and decision making body on privatisation and economic
reform in Nigeria. In the same vein, 22 labour leaders of some industrial
unions were made members of all the 11 technical and sector reforms
implementation committees of the NCP; thus, ensuring the attainment of the
desirable goals of vertical and horizontal integration of labor in the
privatisation process.

In fact, the electricity unions were members of the Electric
Power Implementation Committee of the NCP which produced the Electric Power
Policy and the Electric Power Sector Reform Bill. And Section 28 of the
Privatisation Act of 1999 lists NEPA as a candidate for privatisation. Furthermore,
the Electric Power Sector Reform Act 2005 provides for the privatisation of the
electricity utility. Let us say for the umpteenth time that BPE is implementing
the provisions of the EPSR Act.

In addition, when then Acting President Goodluck Jonathan met
with the leadership of two unions in the electricity sector last May, were they
not told about government’s desire to re-start the stalled power sector reform
programme?

Moreover, is it not disingenuous for the labour unions in the
electricity sector to, on the one hand accuse the BPE of not engaging them in
dialogue and when the opportunity is available for negotiation, they refuse to
meet with the privatisation agency? An example was on Tuesday, November 2, 2010
when the unions refused to engage with the Bureau at a meeting to discuss
labour matters under the chairmanship of the Minister of Labour.

NUEE had argued that “if the government is really serious about
the sector, it should allow the 25 licensed companies to operate alongside
PHCN, like the Nigeria Electricity Supply Company (NESCO.) NESCO has been
operating in Nigeria since 1929, generating its own electricity without taking
over PHCN.” The fact is that due to the structure of the electricity industry,
it is not possible for private operators to build their distribution facilities
to compete with the extant distribution network of Power Holding Company of
Nigeria (PHCN.)

Transmission versus
generation

It is important to note that the technology in power generation
allows for many participants unlike the technology for transmission and
distribution networks. One can set up separate generating plants using any fuel
source (hydro, gas, coal, etc) that is economically viable. At any point, you
can have many players. Transmission network is such that it is a natural
monopoly given that you cannot ask every operator to build its own transmission
network. It is uneconomic, not sensible and, in the end, counterproductive and
this is what Ajaero and NUEE is recommending to Nigeria.

In fact, the design of the Nigerian Electricity Supply Industry
(NESI) is such that the Transmission Service Provider (TSP) should give equal
access to generators in accordance with laid down rules. It is in order to
initiate this that the Federal Government has retained ownership of the
transmission network.

Indeed, the Electric Power Sector Reform Act of 2005 recognizes
the monopoly elements in the transmission and distribution chains of the
industry structure. That is why the law gave the Nigerian Electricity
Regulatory Commission (NERC) the power to set tariffs for both services so as
to prevent consumers from being exploited. This is what is done in all
electricity markets that are reforming.

It should be noted that the revenue that drives the entire value
chain (generation, distribution, transmission-market operator and system
operator) comes from consumers through the distribution companies. In this
regard, any reform that does not address the challenge in the distribution
network would collapse as there would not be adequate revenue to fund the rest
of the value chain (that is, generation and transmission.)

Ajaero had stated that “they claim that PHCN is inefficient and
obsolete but today, they are scrambling to take over the obsolete PHCN that
cannot deliver. Today, tariff has started going up and in the next few months,
it would go up to 300 per cent without commensurate improvement in the power
sector. We challenge the protagonists of privatisation to come and sign
agreement with the workers that tariff will remain the same for the number of
years till power generation and transmission situation improves.”

Given such comments, one wonders on whose side Ajaero and his
sympathisers are in the power sector reform programme. Is he on the side of
Nigerian consumers who are compelled to invest in self-generation, thereby
raising their tariff from an average of about eight naira per kilowatt-hour
charged by PHCN to a real cost of N80 per kilo watt hour? It is clear from
Ajaero’s remarks that he is not on the side of the long-suffering Nigerian
electricity workers and consumers but on the side of importers of generators
and diesel. Moreover, the current tariff structure has a subsidy element of
N177 billion over a three-year period (2008-2011.)

More funds needed

It is important to state that government’s annual capital outlay
(for all capital budgets) is about $6 billion whereas power alone requires $10
billion annually. In other words, annual funding requirement has already
outstripped the capacity of public sector funding. The funding requirement will
grow as the economy and population grows. And let us not forget that public
sector does poorly at efficient design, planning, funding and implementation of
any kind of infrastructure project.

The unions think they have a winner if they hinge their
opposition to privatization to tariff increases. On current tariffs, no private
operator will get involved as it is not attractive. It is only when the tariff
regime is made investor-friendly that the investments that will address our inadequacies
come on board. The unions have asserted that none of the 20 private power
companies issued licenses by the Nigerian Electricity Regulatory Commission
(NERC) to generate electricity has added a megawatt of electricity to the
national grid.

It needs to be stated that Shell, Agip and AES are all operating
IPPs and supplying power to the national grid. Shell is generating not less
than 450 MW; Agip generates 450 MW and AES produces 200MW. Shell and Agip are
oil companies who are not unduly concerned about being owed since they have
access to the oil revenue. AES is producing because they have a sovereign
guarantee. As such, if PHCN does not pay AES, the Federal Government does.
Thus, out of currently available power of 3, 500 MW, the three IPPs are generating
1,100 MW.

There is a pertinent question to also ask: who are the private
power generators going to sell to? Is it PHCN that is not financially viable
and would not be able to honour commitments? It is the recognition of this gap
in the industry structure that led the Federal Government to incorporate the
Nigerian Bulk Electricity Trading Plc, also known as the “Bulk Trader.”
Incorporated on July 29, 2010 by the BPE, the functions of the Bulk Trader are
to undertake the business of trading in the wholesale electricity market as
bulk purchaser and the bulk seller of electricity and ancillary services
pursuant to the Electric Power Sector Reform Act 2005; and to take over the
contract management and obligations of the Federal Government of Nigeria under existing
Power Purchase Agreements (PPA).

Chukwuma Nwokoh is Head of
Public Communications at the Bureau of Public Enterprises