FG Pledges Commitment To Contractual Obligations On Power Sector Privatization, Plans To Spend $150Million On Rural Electrification Programme
• 44 tertiary institutions audited to anchor the programme
• Funds to be deployed on solar, gas Independent Power Plants (IPPs) to power the institutions, rural areas
• As Power, Works and Housing Minister disagrees with proponents of cancellation of privatization of power sector
Nov 10, 2016 - The Federal Government has pledged to uphold all contractual obligations entered into by it just as it announced plans to spend an estimated $150Million on its intended rural electrification programme in the country using 44 tertiary institutions and the small hydro dams in the rural areas of the country as anchors for the programme.
The plan was disclosed in Lagos by the Minister of Power, Works and Housing, Mr. Babatunde Fashola SAN, who also disagreed with proposals in the public space calling for the cancellation of the privatization of the power sector stressing that investors that took the plunge into the venture must have the assurance that government would not flip flop and that contracts that fail have consequences.
Speaking at the Eko Hotel, Victoria Island, venue of the 2016 European Union-Nigeria Business Forum with the theme, "Financing opportunities in the Nigerian Power Sector", Fashola said the amount would be deployed towards providing Independent Power Plants (IPPs) to supply electricity to the tertiary institutions with a view to extending same to the rural communities in their environs.
The Minister, who explained that 37 out of the 44 tertiary institutions audited were universities while seven were teaching hospitals, said government would deploy 37 IPPs made up of nine gas plants and 28 solar plants with a combined generation capacity of 120 Megawatts to power all the universities.
Disclosing that President Muhammadu Buhari has approved the Rural Electrification Programme, he explained further that the 37 IPPs would replace 1,105 generators that were hitherto serving the institutions and generating 210 MW of "inefficient and unclean energy" adding that the amount would cover Capital Expenditure (Capex), operations and maintenance.
The Minister reiterated that the power sector has been privatized and has implication for where to deploy financing adding, "This is only an example of what money can do, and where to inject finance, and where opportunities lie", pointing out that by privatization, government has expressed intention to let go of power generation and power distribution, while retaining transmission through the Transmission Company of Nigeria (TCN).
He said with the privatization of the sector, government's role was now restricted to policy-making, through the Ministry, in areas like the Energy Mix, safety of energy and governance, regulation through the Nigerian Electricity Regulatory Commission(NERC) to license, monitor and sanction the operators as well as setting the tariff and Safety through the Nigerian Electricity Management Service Agency (NEMSA) by ensuring quality of installations, certification of equipment and standards and meters, among other responsibilities.
Other agencies through which government exercises control over the sector, the Minister said, include the Bureau of Public Enterprises (BPE), for Governance, the Nigerian Bulk Electricity Trader (NBET) for Tariff negotiation and guarantee of income during transition and as Electricity Bulk Purchaser and the TCN for Transmission, grid management and expansion.
Noting that there were discussions in some quarters about revisiting the privatization of power, Fashola said if by "revisiting" the discussants meant cancellation of privatization, he was not in support pointing out that it would mean cancelling contractual obligations entered into between government and the investors who had committed their capital in the venture.
The Minister declared, "I will like to weigh in on some reports where there are calls allegedly being made for us to "Revisit the privatization". While I would love to have some more clarification about what is meant by "Revisit", let me be clear that we would probably not be here talking about financing opportunities in power, without privatization".
According to him, any talk of cancellation of the privatization was a negative signal to investors that Nigeria has no respect for contracts and would not support that. He added, "If revisiting means that the operators should allow more investors into the business I am for it but with the caveat that it has to be done within the Rules of Contract, negotiation and possibly arbitration".
Fashola also gave his full support to any move to hold the operators to their agreements adding that the ministry was fully supporting NERC, the regulator, to develop verifiable parameters of ranking, compliance and sanctions, that would stand the test of objectivity.
Urging those who make the argument to be specific, Fashola declared, "Let them come out. Let's have a discussion. Does revisiting mean cancelling it? That I don't support. The investor that took the plunge must have the assurance that government will not flip flop and contracts that fail have consequences".
The Minister, who recalled the first time in 2007 when government announced the privatization of some refineries only to come back and cancel the privatization, asked, "Do we have our own made-in-Nigeria fuel today?", adding that if the country must attract investment both locally and internationally, she must stop policy inconsistency.
"That is my personal position. And, as Minister, that will be the position I would canvass. Of course I don't believe in revoking contracts; and let's be clear about this; the investment community is a small community they talk to each other every day".
Declaring the commitment of the present administration to uphold all the contracts that it is committed to, Fashola added, "If there are any disputes about those contracts, the umpire is the judiciary or arbitration".
The Minister, however, said he was in support of improving the governance where there would be government control "only in terms of how all of the companies are subject to regulations either by NERC or by the Corporate and Companies Allied Matters Act and all of that".
"So these are laws we must now enforce; proper governance, how managers, directors must behave in a company, rules of position of account, proper auditing and all of that. I am for that and we have started that process", he said adding, "If revisiting it means the DisCos should open up so that more investments can come in that is why I am here".
Noting that there is a clause in the contract at privatization "that is limiting the sale of not more than five per cent of the equity", Fashola said once there was a consensus, the parties could renegotiate their contract and break new grounds adding, "So if a DisCo comes now and says I have found a stakeholder who wants to pay more than five per cent can I take their ticket? All you have to do is to go back to the regulator and say look we can't use an agreement and tie down our own development".
Speaking on the topic, "Financing opportunities in the Nigerian Power Sector", Fashola, who emphasized the need for financing and liquidity stability in the sector, listed such areas to include Distribution Companies (DisCos) and their Generation counterparts (GenCos) in the areas of Funding supply of meters, upgrading distribution equipment like transformers, ring mains units, feeders for DisCos and funding, especially in foreign exchange, for the GenCos to acquire turbines, parts and accessories which are largely imported.
According to the Minister, "They (DisCos) need a lot of operating capital to buy metres, to change transformers that are old, to extend access to their customers, to replace transformers and so on and so forth. They need operational capital and they need it in mix of foreign exchange because some of the things they want to buy are not made in Nigeria and there are some made in Nigeria".
He said investment in the GenCos was also profitable because, according to him, "as the market settles and stabilizes, the returns therein is something that you can look forward to as a good return on investment".
The Minister also listed gas extraction and processing, installation of metres and other accessories to supply gas to existing power plants and the TCN adding that TCN would benefit from financing of its grid expansion programme if it could "present a detailed prospect plan that demonstrates investment need and return potential".
Pointing out that TCN would also benefit from investment in local galvanized steel companies and local transformer and cable companies to supply her project implementation inputs, Fashola added, "Solar, Coal, and other suppliers require investment to finance acquisition of photovoltaic panels, heavy duty equipment and related machines not made in Nigeria".
The Minister said NBET, a government owned company which, according to him, "plays a stabilizing role as bulk power purchaser and guarantor of payment for all operations by signing power purchase agreements with power providers", was planning to raise a bond, and encouraged investors to buy into it "especially because it is a government owned".
Financing opportunities, he said, also exist in Rural Electrification Fund, Meter, Transformer, Cable and Galvanized steel manufacturing companies in the country all of which, according to him, "are in need of forex to acquire some of their raw materials to enable them supply and support the industry with products made or assembled in Nigeria, in order to drive growth".
Also recommending the National Power Training Institute (NPTI), a skill developer institution in the sector, as a financing opportunity, Fashola, who said the institute recently completed the training of 500 graduates of house wiring and electrical appliances added, "Training means nothing if they do not lead to jobs, such as them being employed to wire houses, and other places, install equipment like meters and earn income from it. This is the path to growth".
The Minister declared, "This list of possibilities and opportunities is not exhaustive. It is only indicative". He added, however, that the problem was not a lack of investment appetite but rather directing investment to the right places"based on a clear understanding of how the privatized industry now operates and what they need", adding that what was needed could only evolve by dedicated planning for project implementation, clear bills of quantities and a detailed implementation programme.
On the theme of this year's Business Forum, "Harnessing Nigeria's potential for economic growth," Fashola said although the Nigerian economy had experienced some growth in the last few years, it was wrong for anyone to claim credit for the growth or for it to be attributed to any overt act or economic policy of government maintaining that the growth happened "in spite of the lack of coherent economic theory".
Saying it was important to disprove what he called "the emerging distortions about how the Nigerian economy grew in the last few years, and some claims of benefits or credit for that Growth", the Minister declared, "Let me be clear that nothing can be further from the truth than any person seeking to claim any substantial credit for that period of about 7.5 to 8% growth".
"The globally accepted drivers of growth are infrastructure and sound economic policies. Where are the completed power plants, the completed rails and road projects and bridges, steel plants and related infrastructure? The evidence that abounded, which was reported at the time, were thousands of uncompleted projects at the best or abandoned projects at the worst.
"They are the roads and power projects that were not budgeted for or funded, that resulted in the lack of payment to contractors since 2013 and massive job layoffs. These are not indices of growth; at least not in a sustainable way", he said adding that the growth that was recorded came from income from sale of crude oil and the attendant price hikes.
The Minister expressed disappointment that although all oil producing countries enjoyed the boom while it lasted, some invested in infrastructure and were now coping well with the current "harsh global economic winter" while those who did not invest wisely were struggling to cope with the harsh winter "while waiting for the arrival of a better spring".
According to him, while it was fair and true to concede the attempt of economic policies to drive local content in the oil industry, the evidence on the ground pointed largely to a foreign domination in the technological and productive areas of the nation's oil industry while services had accommodated local content participation.
"In effect, foreign content controls the production, and by extension the growth, while allowing local content to take some of the byproducts of the benefit", he said adding that the real area of local growth had been in the entertainment industry which, according to him, "has happened in spite of any coherent government policy by sheer entrepreneurship of the operators".
Fashola, who said the present administration was committed to getting Power right in order to provide a critical infrastructure to drive growth, thanked the European Union for its support towards developing Nigeria's infrastructure recalling in particular, the financial grants the Union provided to support the country's power initiatives.
He expressed the hope that the grant could be accessed and deployed to support rural electrification programme and increase access to electricity, support education, and agriculture adding, however, that the money or grant on its own would not solve the problem without a plan, programme or project ready to be financed or implemented to make the financing impactful. "We have such a plan", the Minister assured the Union.
Fielding questions from participants during the Question and Answer Session, Fashola called for patience and understanding among Nigerians during the ongoing transition in the Power Sector assuring that the present administration was committed to achieving its set goal of taking the nation to uninterrupted power supply.
According to the Minister, who likened the current transition to the telecommunications situation, it is good to have very high expectations but such expectation must be contextualized on the premise that the nation had generated electricity for itself since 1951 and was not able to solve all the problems in the sector.
He said in order to manage the expectations of Nigerians as regards the power sector, there was need to bring the impact of privatization down to the grassroots so that everybody would understand what it was, adding that then the people's reaction to it would be consistent and to the set goals.
The Minister said in order enhance the current efforts to achieve the set goal there was need to support governance and comply with the investment regulations adding that state governments should generate electricity if they could while local government chairmen should do the business in their communities.
"If they find willing buyers who want to take energy from willing sellers and they agree with no compulsion and they want to take it at premium price, which is still cheaper than generator, you will have no problem at all with me, I put it on PPA. That is what I want to see", he said adding, however, that it would not be admissible for any investor to generate power at heavy cost and want to force it on consumers. "You must give consumers at the protected tariff regime", he said.
On consumer protection, Fashola declared, "I think value for money is a two-sided coin. On the consumer's side it is estimated billing and that is why we are making efforts to improve metering. On the DisCo's side it is an energy theft because people have been reported to have bypassed their meters, and it is our brothers and sisters that are helping them".
The Minister said in terms of how complaints could be escalated, apart from the Nigerian Electricity Regulatory Commission (NERC) having a Consumer Complaint Unit in Ikeja, the Commission was opening consumer complaint centres all over the country.
"But most importantly, most of the DisCos now have internet based platforms where you buy energy and they have complaint units on them. So, when you have a problem it is not NERC you run to. It is your service provider because it is him that takes your money", the Minister said.