The privatisation of the power sector was meant to break the control of electricity generation and distribution from government, to ensure adequate, regular and stable supply of electricity to the consumer at a reasonable cost.
But, since the unbundling of the sector and transfer of ownership to private sector operators, not much difference seems to have been achieved. The Director-General, Bureau of Public Enterprises (BPE), Alex Okoh, spoke in this interview, on why the power sector privatisation has not achieved its full objective. Excerpts:
Illiquidity has been identified as reason why the country’s economy went into recession in 2016. Experts say one way to address the challenge of illiquidity in the economy is for government to privatize its redundant assets. What’s your take on this?
Obviously, privatisation is the way to go. Naturally, when you run into a family recession, what to do is to see how to transfer or convert some redundant assets into cash to get out of that financial difficulty, rather than borrow.
Borrowing should be second or the last option to resolving any financial gap or challenge an individual or corporate citizen has. The same case should apply to a country, which should be run the same way a corporation is run.
When there is a shortfall in liquidity to fund developmental activities, the natural fallback situation should be the assets that are no longer yielding any benefits to the country as a whole.
One can privatize these companies and raise liquidity to fund the gap you have. Borrowing a debt should be second or the last option, not the primary option, because there is a cost to borrowing that debt.
This comes back in terms of the budgetary provision to make to service the debt. So, the principle of realizing the value of asset that has accumulated in the period of boom should drive a government policy in terms of bridging its cash fall in the time of gloom.
From the privatisation proceeds we have so far, how confident are you that this can fill the huge liquidity gap you are talking about in the economy?
privatisation is not only in terms of the current assets that are listed either in the schedule of the BPE for privatisation. The whole assets the government has as a sovereign state is available for privatization, which does not actually mean the sale of the asset itself.
You can equally privatize by concession, which means you still retains the ownership in case those assets are critical and strategic, like was done with the hydro power plants. You can also retain the ownership of the asset and then transfer the economic rights to private sector investors who would improve the infrastructure and pay concession fees to the Federal Government.
So, it is a way of realising revenues and optimising the value of those assets, which are otherwise totally redundant.
For instance, there are security agencies’ barracks, like police barracks, situated in very prime locations in the country. Nothing says that one cannot redevelop those sites to attract commercial value and take those barracks to more remote locations where the critical need for that location is not as dire, and realize value from that land by developing it.
So, we have to be creative, in terms of how we unlock the hidden values in government assets in sovereign assets, so that we can generate the necessary liquidity to bridge the necessary budgetary shortfalls.
On the argument about illiquidity as one of the reasons privatized entities don’t do well, if you look at the power sector today and the recent faceoff between the minister of Power and the electricity distribution companies, it appears privatising the power sector is not going the right way. What’s your take on this?
Well the privatisation of the power sector has not achieved its full objective. I’ll be the first to admit that. And there are several reasons.
There are industry issues, some of which are related to the price of electricity (the tariff). Others have to do with the efficiencies of the current operators of the electricity distribution companies (DISCOs), in terms of how they enumerate the customers based on their franchise areas, or how they are able to meter the customers for people to pay for their use of electricity, rather than estimated billing.
There are also infrastructural issues around availability of transformers and electricity distribution infrastructures, which need to be upgraded and expanded.
So, until we are able to pull together all these various aspects that contribute to the efficiency of the power sector, especially at the distribution end of the value chain, it will be very difficult to determine what the appropriate pricing of the tariff should be.
At the moment, tariff is not at the level it should be to compensate for the cost of delivering that service now.
But, the issue is: have we been able to properly assess what the actual cost should be, if we factor in the efficiency of the DISCOs into the system?
It is only after you have done that empirically that you will be able to determine the shortfall and how it is going to be bridged, either through the increase in tariff or through subsidy by government if it can afford the social implication of the present tariff.
Culled from: PREMIUM TIMES