For the power privatization in the country to work, the industry’s regulator- Nigerian Electricity Regulatory Commission (NERC) must be allowed to perform its mandate without interference, the Acting Director-General of the Bureau of Public Enterprises (BPE), Dr. Vincent Onome Akpotaire, has said.
Speaking at a 2-day stakeholders interactive dialogue/workshop organized by the joint committees of the National Assembly on Power in Abuja on Wednesday, February 8, 2017, Akpotaire said that NERC must be allowed to fix tariffs in line with the Electric Power Sector Reform Act (EPSRA) without interference from any quarters and that if the tariffs are considered high, the government could decide to mitigate the effects by taking up a percentage of the tariffs instead of outright cancellation.
The Acting Director-General cautioned against the blame-game in the power sector and appealed to the executive and the legislative arms of the government as well as other stakeholders to come together to find solutions to the sector’s challenges.
Explaining why the Federal Government is being asked to subsidize the Nigeria Electric Supply Industry (NESI), the BPE helmsman said that the loss levels at the point of privatistion of the power sector, that is the Aggregate Technical, Commercial and Collection (ATC &C) loss of Nigeria was about 50% on the average which could not be fully passed to consumers immediately to avoid rate shock and consumer rebellion.
On why the Central Bank of Nigeria (CBN) gave a loan of N213 billion to the privatized power companies, he said that the “Multi-Year Tariff Order 2 (2012) that was put in place when investors took over on November 1, 2013, had assumed AT & C loss level of 25 %.The agreements signed with the investors gave NERC and the Distribution Companies (DISCOs) one year to determine the true AT & C loss levels which was subsequently found to be about 50% on the average. Based on the new ATC & C loss levels, a new tariff was issued by NERC with effect from February 2015 but the shortfall that accumulated because of the wrongly assumed ATC & C of 25% from November 1, 2013 to December 31, 2014 amounted to N213 billion. Consumers were liable to pay the N213 billion immediately but the CBN intervention by way of a loan to the DISCOs, enabled NERC to spread the recovery of the money from the consumers over a ten year period.”
Expatiating on why the core investors in the DISCOs were not investing heavily in line with the covenants they signed with the government, he said the transaction structure compelled investors to raise money and pay for their 60% equity in DISCOs using their own balance sheet and that upon take over, the investors were expected to leverage on the acquired companies’ clean balance sheets to raise additional funds for investments. However, he pointed out that financial institutions have refused to lend money to the DISCOs until a cost reflective tariff is approved in line with the agreements; and the CBN loan to the industry removed from the books of the DISCOs.
Akpotaire said, though, the Federal Government owns 40% of the DISCOs, it was not part of the management because it was not funding its shares on the boards.” The Performance Agreement executed with investors has assigned operational risks to investors. The PA provides that a core investor who fails to achieve agreed targets stands the risk of losing his/her equity at the payment of US$1 by the Federal Government.”
On why the BPE is on the boards of the power companies, the Acting Director-General explained that “since 1988 when TCPC, the agency that BPE replaced, was established, BPE has always represented the Federal Government on the board of any company undergoing reform and privatization” on the grounds that it makes it possible for the BPE to have access to all the information it requires to carry out its statutory duties of reform and privatization and “since all key strategic decisions are made by the board, it would not make sense for BPE to give guarantees on behalf of a company it does not know the critical decisions that its boards had taken. The initial five-year period is usually a time to help nurture the companies on the path of growth and success.”