Economic Update

The government has vowed it will push ahead with plans to privatise Nigeria’s power sector, despite the minister responsible for unbundling state power assets stepping down and increased opposition from unions.

At the end of August, Bart Nnaji, the minister of power, resigned from office after it was revealed that a company in which he had an interest was linked to one of the foreign consortia bidding on the unbundling of the state-owned Power Holding Company of Nigeria (PHCN). The group of companies in question were bidding on two of the six generation and 11 distribution units that will be created by the dissolution of the PHCN.

Pakistan-based O & M Solutions, part of a consortia bidding on the Afam Generation Company and Enugu Distribution Company, had previously carried out work for a company founded by Nnaji. This conflict of interest prompted the National Council on Privatisation to cancel the technical bids for the two power companies.

Government officials moved quickly to assure investors and development agencies that Nnaji’s removal from office would not disrupt the government’s plan to open up the electricity sector. On September 2, Darius Ishaku, the minister of state for power, said that while it was regrettable that Nnaji had left his post, the process of reform he had fostered would continue.

Speaking to concerned stakeholders following Nnaji’s resignation, Ishaku said, “I want to reassure you that this government will continue to build on and nurture all the institutions he had put in place. Privatisation is ongoing with all the timelines. Continue to give us your support, as we have no choice but to continue from where he left off.”

Meanwhile, Nnaji said the reforms he had enacted and the processes that were in place would survive his departure, serving both the sector and investors well.

“Governance is about structures,” the former minister said on August 31, the day he formally left office. “We need to continue to build on the existing structures we have established and get the sector to keep growing. The international community should not worry. A structure is in place to continue to grow power.”

Quite apart from any lingering concerns over the long-term prospects for the privatisation process, some in the private sector have queried the government’s decision to maintain a strategic stake in the newly created distribution companies. Rather than follow the advice provided by the Bureau of Public Enterprises (BPE), which called for the full and complete sale of the country’s electricity distributors, it was decided that the federal and state governments would retain a 49% holding.

There have been questions as to whether the government will contribute investment funding at the same ratio as its ownership stakes, and how much of a management role the state will play in the new enterprises.

The issue of investment is a significant one: current output falls well short of the country’s power requirements for its population of 167m people, with just 6000 MW of installed capacity (and actual output generally far lower) to meet the demand of some 40,000 MW over the next decade. To ensure that current and forecast demands on the grid are met, the Ministry of Power has estimated that $10bn worth of investments will be needed annually for at least the next 10 years. This investment will help eliminate shortfalls and build required capacity.

Despite the projected high level of investment, the continued strong growth of the Nigerian economy – which is projected to expand between 6% and 7% this year – has proved appealing to local and foreign firms, with 25 lining up to compete for the distribution and generation companies on offer.

Though investors and international agencies have welcomed the move to privatise the electricity industry, believing it will result in increased investment in the sector and serve to boost economic growth, the privatisation scheme has also had its opponents. Labour organisations in particular have come out against the plan, fearing their members will lose many of the benefits that come with working for the state. Some of the disputes between the government and unions are far from resolved, with compensation and pension fund entitlements a major sticking point.

Despite these problems, the government appears intent on pushing through with its reforms and, given the level of interest in bidding on the newly created electricity companies, the private sector will back that determination with the necessary investments to make the privatisation process a success.