TOTAL ELECTRICITY SECTOR LIBERALIZATION
- PANACEA TO THE INCESSANT POWER OUTAGE IN NIGERIA -
(A CASE STUDY OF THE TELECOM SECTOR LIBERALIZATION IN NIGERIA)
INTRODUCTION
For as long as one can remember, every successful government have been making efforts to solve the power problem in Nigeria but as evident in today’s reality; the problem lingers.
This piece is an attempt to review the situation and proffer solution, yet the solution is not far fetch, it is to go the way of TOTAL ELECTRICITY MARKET LIBERALIZATION.
LIBERALIZATION; is a theory and or process in which market forces are allowed to develop and thrive without direct governmental interference. It seeks to foster a perfect and free markets situation.
MARKET: Suffice to say here that by MARKET we are referring to the whole economic activities in the electricity sub sectors of the economy.
PREFECT MARKET:
A Perfect market is an efficient or the most efficient market model, the efficient market hypothesis (EMH) therefore, is a market theory which states that it is impossible to "beat the market" because of the effectiveness of the forces of demand and supply.
The inter-play of these forces causes existing prices to always incorporate and reflect all relevant information.
It is a market model with an in-built, inherent, auto-price stabilizer and or self price adjustment mechanism.
It is a market in which buyers and sellers have complete information about a particular product; in this case; electricity and it is easy to compare prices of the products because they all totally have same variables.
It allows for free entry and exit as opposed to an imperfect market environment which is a direct opposite of the above scenario.
CHARACTERISTICS OF A LIBERALIZED MARKET OTHER THAN THOSE STATED ABOVE. Some of the characteristics of a liberalized market include;
1. Size, the bigger the market size, the better, a liberalized market allows for large numbers of buyers and sellers.
2. Competitiveness, because of the large number of participant in the market there evolves a health rivalry and competition.
3. Price dynamism, since a liberalized market is with minimal interference of government, Prices are therefore flexible and auto-self adjusting.
4. Socio liberalism and human right, a liberalized market guarantees freedom for all; as much as there-can-be. Both buyers and sellers have freedom of choices and the right of every participant is guaranteed as much as possible.
Government Intervention: The role of government in a liberalized market model is limited (as much as possible to policy formulation and enforcement.
The Nigerian Electricity Market environment:
Nigeria has always been in the business of organized power production since the days of Tin Mines in Jos Platue and the Ijora Power Plant in Lagos came into being, during which we have had Electricity Company of Nigeria (ECN), National Electric Power Authority (NEPA), and . All the years of these companies, the problem of lack of adequate power in homes lingers, power was never produced and or supplied in a commensurate quantity with regards to demand.
However during the 4th republic, the Obasanjo-led Government therefore set about developing a Bill that was ultimately passed as an Act of the Nigerian National Assembly known as the Electricity Sector Reform Act (EPSRA) OF 2005. This Act transferred all of NEPA assets to a holding company that could be subsequently unbundled.
The Holding company became Power Holding Company of Nigeria which was eventually unbundled into:
Six (6) Generation Companies (aka GenCos),
One (1) Transmission Company (aka TCN).
Eleven (11) Distribution Companies (aka DisCos).
By the end of 2005, the Nigerian Electricity Regulatory Commission (NERC) was put in place. However, when the YarAdua Government came into existence in 2007, the NERC Commissioners were arrested; suspended and sole Administrator was appointed. The Government went further and totally suspend the power reform process and it remained so until Dr Goodluck Ebele Jonathan became Acting President in 2010. In March 2010, the then Acting President set up a Presidential Advisory Council of 26 people, chaired by Gen. T.Y. Danjuma, while Professor Bart O. Nnaji was a member of that Council. The Council setup 6 committees to address specific national issues and to advise the Acting President. Professor Bart O. Nnaji was selected to chair the Power Committee of the Council.
The Power committee prepared a report that advised the President to restart the power reform and how to initiate the program. Three months later, the President appointed Professor Bart O. Nnaji as his Special Adviser on Power, and Chairman of the Presidential Task Force on Power. He also set up another committee, known as the Presidential Power Committee on Power, which the president chaired personally.
The Task Force was the operational arm of this Presidential Action Committee. It was this Task Force that produced the Power Road Map which the President launched on August 26, 2010 in Lagos.
“The Fundamental goal of the reform was to empower the private sector to become the driver of electricity generation, transmission and distribution in Nigeria. To achieve this, a number of things had to be done.
One was to privatize the generation and distribution companies.
This was because no distribution company in Nigeria was credit worthy enough to be able to buy electricity from a generation company and be trusted to be able to pay for the electricity it is purchasing.
The only way therefore to achieve the credit worthiness for the Discos to be able to enter into Bilateral Agreements is by handing it over to
private companies that can then raise the necessary fund to invest in the companies and remove the corruption that was endemic in the system.”
Prior to the reform bill all we have had was an imperfect electricity market in Nigeria.
IMPERFECT MARKET
What is an imperfect market? As afore-said, imperfect market is a contradiction of perfect market having directly opposing Characteristics.
Examples:
1. Monopoly:
A monopolistic market is a market situation where only one company is calling the shorts, offering products and services to the public. This is the opposite of a perfectly competitive market, in which an infinite number of firms operate.
2. Duopoly:
This is a market dominated by only two companies. A duopoly can have the same impact on the market as a monopoly if the two players collude on prices or output.
3. Oligopoly:
Is a market structure in which a small number of firms have the large majority of, or the entire market share. An oligopoly is similar to a monopoly, except that rather than one firm, three or more firms dominate the market.
While the intent and purposes of our electricity sector reform Act may be good and laudable the final implementation there-off returns us to an oligopolistic imperfect market situation because, the implementation lacks many of the narratives of an open market model.
And I can conveniently conclude that any sector reform(s) in Nigeria that is short of total liberalization (creation of a perfect market environment) will end up under-cutting the masses giving the high level of capitalistic tendencies of an average investor coupled with the high level of materialistic tendencies of an average Nigerian.
KEY NARATIVES OF A LIBERALIZED (OPEN / PERFECT) MARKET SITUATION
Privatization:
This is the transfer of a business, industry, service or an economic sector from being a government / public dominated to a private ownership and control.
Deregulation:
This is the total or partial removal of government laws and control in an industry or an economic sub sector to foster a more healthy competition within the sector and encourage investment, allowing full operations of the law of demand and supply.
Commercialization:
This is the process by which products, goods and services are offered for sale to the public primarily for financial returns on investment, simply put, it is; doing business essentially for profit.
Liberalization:
A meaningful liberalization seeks as much as possible to embrace all the above.
Any serious minded individual or government desirous of solving the protracted electricity problem of Nigeria should go the way of totally opening up that sector.
The Jonathan government erred by focusing only on Privatization and not on the attainment a holistic solution to the problem. To make matters worse, at least from the general public perspective, the privatization under President Jonathan was a shallow one in that it sought only to complete the “unbundling” process of Obasanjo and to subsequently sell the Power Holding Company of Nigeria (PHCN) to the highest bidders.
A CASE STUDY OF THE TELECOM SECTOR REFORM UNDER PRESIDENT OBASANJO
It bears repetition to say absolute liberalization is the way to go in Nigerian electricity market if we must come out of this obvious imbroglio. And fortunately for us we have a good example in the telecom sector reform done during the Obasanjo government.
Compare these key narratives of the telecom reform to the electricity reform giving these direct quotes from the chief drivers of these reforms.
One;
“CHARACTER OF TODAY’S TELECOM SECTOR IN NIGERIA, TODAY’S TELECOM SECTOR IN NIGERIA HAS: Fully liberalised telecom market, Government’s role restricted to policy formulation and sector regulation, A strong, independent Regulatory Authority Competition in all segments of the market,”
1. Copied from:
“TELECOM LIBERALISATION IN NIGERIA”
A paper presented at SATCOM 2005 By Engr. Ernest C. A. Ndukwe (former) Executive Vice Chairman/CEO Nigerian Communications Commission
Two;
“The Fundamental goal of the reform was to empower the private sector to become the driver of electricity generation, transmission and distribution in Nigeria.
To achieve this, a number of things had to be done. One was to privatize the generation and distribution companies. This was because no distribution company in Nigeria was credit worthy enough to be able to buy electricity from a generation company and be trusted to be able to pay for the electricity it is purchasing. The only way therefore to achieve the credit-worthiness for the Discos to be able to enter into Bilateral Agreements is by handing it over to private companies that can then raise the necessary fund to invest in the companies and remove the corruption that was endemic in the system.
However, privatization cannot happen unless those who are buying the power companies can clearly see how they would recover their investment.”
2. Copied from:
“The State of the Nigerian Power Sector: Issues, Alternatives and Prospects”
An address delivered at International Headquarters of The Redeemed Evangelical Mission (TREM) on 21st September, 2014
By Professor Bart O. Nnaji, FAS, FAEng, CON, NNOM, Former Minister of Power and Chairman/CEO of Geometric Power Limited
In the Telecom reform the key narrative was LIBERALISATION while it was PRIVATIZATION in the Electricity reform.
The telecom reform is a sector-wide liberalization as well as sales or privatization of NITEL but the implementation of the Electricity reform seems to be all about the sales of PHCN at least until any government choose to be more aggressive and do otherwise.
In the telecom sector reform, first the sector was wholly liberalized and secondly NITEL was wholly privatized.
If all what the Obasanjo government did was just to unbundled and privatized NITEL without a holistic sector liberalization our faith can now better be imagined. Because the Nigerian government’s owned Telecom Company (NITEL) which was unbundled and privatized, is yet to be “fully operational” as I write this piece, several years after the sector was liberalized, yet “Globacom” a wholly Nigerian company which emerged directly from the liberalization is now a global brand and leading the internet subscription sub-sector of Nigeria.
Suffice here to say that the present administration should as a matter of urgency review the electricity reform of Jonathan and re-aligned it with a holistic liberalization; else they might end up leaving Nigerians in darkness than they met us.
Our former governor of Lagos State, the honorable Federal Minister of Power, Works and Housing, Mr. Babatunde Raji Fashola, SAN should act now for posterity’s sake.
Written & Posted By: 
nehanoyeson@gmail.com
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