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Negative income from PHCN sale? By Henry Boyo

Public expectation for adequate and stable power supply may have been raised when President Goodluck Jonathan handed over share certificates to the private investors in five generation and 10 distribution companies created from the unbundled Power Holding Company of Nigeria.

In return, for their total payment of about $3.3bn (N530bn) to the Federal Government, the investors have  taken over 60 per cent equity and controlling stakes in the DISCOs, while the GENCOs were allotted between 51 and 100 per cent in five plants with total installed capacity of about 6000MW.

Furthermore, in order to promote the smooth take-off of this exercise, President Jonathan has pledged that the privatised companies will be handed over without any baggage of debts, as “all existing PHCN liabilities had been pooled together to be separately managed by the Nigerian Electricity Liability Company”, a newly created agency, which critics may see as a wasteful duplication of the establishment and functions of the already existing Debt Management Office.

The obligations to workers appear to be the most critical component of the PHCN liabilities, whereas the extent of other contractual obligations still remain unclear!  The PUNCH editorial of September 30, 2013, has however, estimated outstanding workers’ liabilities at about N400bn, while it also suggested that the PHCN debts to local and foreign creditors as well as suppliers may be well over N450bn.  Thus, while the Federal Government’s total revenue from the privatisation of the PHCN generation and distribution operations amounts to less than N530bn ($3.3bn), the same government will pay out over N850bn; (i.e. incur a net loss of over N300bn), to finally privatise these PHCN divisions!

Worse still, with the allegedly dwindling revenue from oil currently, government may ultimately have no other option but to increase the nation’s already crushing debt burden by borrowing at the atrocious and excessive rate of about 14 per cent in the domestic bond market to fund the net loss of over N300bn incurred from the sale of the DISCOs and GENCOs.

Curiously, therefore, despite the alleged infusion of over $12bn to supplement existing PHCN assets by former president Olusegun Obasanjo, the current Minister of Power, Chinedu Nebo, recently also observed that an annual average of $3.5bn has been expended by successive governments to raise generating capacity in the last 10 years!  Consequently, it seems rather awkward that after the massive outlay of over $40bn to improve power supply in the last decade, Nigeria would ultimately receive barely $3.3bn as payment for between 51 and 60 per cent of the distribution and generation assets of the parent PHCN. The expectation of another $3.5bn inflow from the eventual privatisation of the Integrated Power Projects may still not put a shine on these transfers of public assets to private investors!

Furthermore, despite the alleged poor state of the GENCOs, critics may observe that a 6000MW plant at standard current cost may well exceed $6bn, even without inclusion of the value of the  existing extensive property and infrastructure of the PHCN nationwide.

Consequently, the foregoing may be seen by critics to be a lopsided business model that does not favour our nation.  Conversely, however, some others may argue that the loss is the ultimate price to finally plug the huge revenue leakages and restore sanity in the business of power supply in Nigeria.

Nonetheless, other critics, including The PUNCH editorial earlier referenced, have, however, rightly or wrongly, alleged that the PHCN’s privatised assets “fell into the hands of companies with spotty records of accomplishment in the electricity business”.  Such critics are concerned that the new buyers may not be able to attract the annual investment of $10bn that the IMF projects will be required in the next 10 years to adequately close the power supply deficits.  Indeed, according to the editorial, there are indications that the new owners may experience difficulty in raising the estimated initial requirement of over $3.5bn to jump-start their operations.

In addition to the above challenges, consumers nationwide are concerned that despite the Nigerian Electricity Regulatory Commission’s assurances, the DISCOs may also rapidly and arbitrarily increase tariffs.  Indeed, these fears may have been given substance by Robert Yates, spokesman of the distribution companies, at a recent workshop organised by the Bureau of Public Enterprises and the regulatory commission.  Yates argued that a new tariff structure should be multiple-fold higher than the NERC is suggesting in order for DISCOs “to adequately cater for salaries, their interest payments to banks and other operational expenses.”  Yates, therefore, noted that “the arrangement currently suggested by the NERC would result in the DISCOs’ breaching of covenants with their bankers.”

However,  in recognition of the reality that the PHCN had in the past sustained between 40 and 50 per cent (subsidy burden) loss in its distribution operations, NERC  is apparently encouraging the investors “to be patient and take over the companies first, and be “seen” to have done something, before we can even hold discussions on another tariff increase.”

Evidently, the DISCOs do not see NERC as an equitable umpire, as they allege that the commission appears to be championing the consumer’s cause rather than establishing a level playing field for all stakeholders!

Furthermore, despite government’s assurances that all outstanding labour-related pay issues would be resolved before the physical handing over of the privatised companies, the PHCN workers have insisted that some issues remain unresolved. These include, “non-remittance of the two per cent of union deductions, as agreed; non-payment of retirees who had disengaged since 2011; non-regularlisation of already identified casual workers; and the recovery of the shortfall in terminal benefits from June 2012 to date.  It is not yet clear if the payout package of about N400bn to the PHCN workers has accommodated all the preceding demands; what is clear, however, is that the private investors and the government have remained silent on the  workers’ demand for 10 per cent equity shareholding in the privatised companies!

The above notwithstanding, there is still also the small constitutional issue of the Executive’s unilateral decision to apply the total proceeds from the sale of the PHCN companies directly to the liquidation of outstanding obligations to workers, without prior lodgment of the income in the federation account and thereafter proper legislative appropriation as per provisions of Section 162(1) of the 1999 Constitution.  In the same vein, the oppressive collateral of an inevitable N300bn plus increase in our national debt without any formal endorsement from the National Assembly may also be seen as inappropriate, particularly in view of the attendant generational burden of debt repayment for many years to come.

Undoubtedly, Nigerians need steady power, but the PHCN privatisation just like others before it may once again leave a sour taste on our palate!

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Omojuwa

In the beginning...Let there be Light http://en.wikipedia.org/wiki/Japheth_J._Omojuwa

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