By Victor Ahiuma-Young
INDICATIONS have emerged that the Bureau for Public Enterprises, BPE, will from the first week next month (December 2010) take the first practical step towards the privatisation of the Power Holding Company of Nigeria (PHCN) by advertising for an expression of interest by core investors in the company.
At a workshop with Labour Correspondents in Lagos, Director of BPE, Mrs BPE, Bolanle Onagoruwa, said planned advertising for an expression of interest by core investors was line with the ongoing effort by the Federal Government to reform the power sector and make it more attractive to investors.
She explained that under the reform programme, the Federal Government plans to relinquish 51 percent of its holding in PHCN to a core investor who will take over the management of the company and the remaining 49 percent holding may be thrown up for grab by interested state governments and Nigerian workers especially those in the power sector.
According to her, the actual bidding for the 51 percent equity holding being offered to interested core investors may likely take place in May/June 2011. The government had earlier unbundled the company-breaking into 18 successor companies
The DG noted that an appreciable progress was being made with regard to the ongoing reforming in power sector, which, in the last one decade, had been bedeviled by gross inefficiency of the PHCN with resultant inability of the nation to generate and supply power to the critical sectors of the economy despite government’s huge investment in the sector.
Said she: “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.).
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.”
She explained that 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, adding it is in order to initiate this that the Federal Government has retained ownership of the transmission network.
Explaining further, she said “the distribution component of the electricity industry structure also shares the element of monopoly with the transmission component. In Nigeria, the distribution network has been split into eleven companies. So asking all the generators to build different distribution networks as done by NESCO in Jos is wasteful and will make Nigerian consumers pay the unnecessarily high electricity tariffs.
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 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.”