The power sector reform has become a major discourse on the national agenda. It is no longer a case whether it is of necessity for the reform to take place or not, as all Nigerians seriously yearn for the change in mode of electricity supply which is epileptic and in some areas never available.
The consequence to the economy, both the formal and informal sectors had been quite devastating with most of the once virile companies shutting down or relocating to other countries in West Africa.
However, the major contextual issue is the mode the reform should take, for the unions in the sector, reform will be accommodated provided the Power Holding Company Of Nigeria’s (PHCN)’s property is secured and other players come along to compete with PHCN. But as far as the government is concerned, that cannot be possible as PHCN is considered a drain on the economy and hence, must be totally privatized,
The Bureau of Public Enterprises (BPE) saddled with the responsibility was in Lagos recently to present a defence on the need why the privatization should go ahead without further delay and the government is plan has for the workers in the planned privatisation.
According to the Director-General of BPE, Ms Bolanle Onagoruwa, it is no longer news that over two decades, Nigeria invested about $100bn in public enterprises with subsequent transfers to these enterprises amounting to $3bn (1998), $800m (1999), $1.4bn (2000), $4bn (2001). Yet, returns over the period were 0.5 percent
She explained that “it is unquantifiable what the economy loses every year due to the inefficiency of the public power supply. The consequence of this inefficiency is borne by the Nigerian worker and the economy as a whole. The reform programme for the power sector is designed to substantially reverse the frustrating experience Nigerians have had to endure in service delivery in this sector.
The program for the reform of the power sector has led to the unbundling of PHCN into six generating companies, one transmission company and 11 distribution firms. The successor companies are slated for privatisation. The idea is to continuously inject private capital into the various operations of the privatized companies. Such capital injection and efficiency have been inadequate in PHCN over the years resulting in grossly unreliable/non-provision of adequate power supply to the economy.
It must be stated that while the BPE labour policy takes care of the direct and immediate needs of workers, the reform and privatization program rightly focuses on the big picture, that is, the impact on the economy as a whole and ultimately the greatest good for the `opening up of hitherto government dominated sectors to the private sector as well as divestiture of government interest in such sectors.
This approach reflects the underlying philosophy which sees public enterprises as instruments for the improvement of the quality of life for the citizenry, encompassing a myriad of stakeholders – the general public (which ought to benefit from PE services), the government (and therefore tax payers) which own PEs, the economy as a whole (that ought to gain from PEs efficiency) and of course PE workers. The incidence of PHCN’s efficiency or inefficiency, for instance, reverberates beyond NEPA workers. So do the resources expended on underperforming PEs which could have been channeled to improvements in social services such as health, schools and infrastructure.
BPE has taken the informed position to involve workers and their unions in program design and implementation, in the full realization of the strategic and indispensable place occupied by labour in the economy. We are also intimately aware, that, Nigeria is a very vast, heterogeneous and complex country. That being the case, workers’ perception and understanding of government’s reform programs, like privatisation, is invariably influenced by the perception of the likely impact of such programs on their welfare.
Labour policy framework
A policy framework for dealing with the knotty issues of worker redundancy, severance pay, pension and end-of-service benefits was articulated by the National Council on Privatisation (NCP) in 2002. The policy serves as guideline for the resolution of labour issues in privatized enterprises and is aimed at ensuring fairness, affordability, efficiency and transparency.
In line with this policy, the BPE had, between 2000 and date, made good the following liabilities in favor of Nigerian workers:
Salary arrears — N13.756 billion
Terminal benefits — N162.577 billion
Total — N176.334billion
In the Nigerian privatization programme, labour matters have taken first charge on privatization proceeds and has gulped a huge chunk of the proceeds. A few examples will suffice.
Name of Privatised Enterprise
Bid Price (N)Salary Arrears/Terminal Benefits(N)
1Nitel/ M-tel(when Transcorp bought it) 63,030,000,000
76,885,268,850
2 Daily Times 1,250, 000,000 505,874,001.23
3 NICON Insurance 8,499,951,000 3,900,000,000
4 Benue Cement Company 1,029,633,000 636,324,705
5 Savannah Sugar Company 1,350,000,000
1,219,850,000
Perception of the power sector reform by labour unions in PHCN
That said, there is the need to address certain ideas being canvassed by the unions in the electricity sector and their sympathisers. The Nigeria Union of Electricity Employees (NUEE) had argued that “if the government is really serious about the sector, it should allow the 25 licensed companies to operate alongside PHCN, like the Nigeria Electricity Supply Company (NESCO.) NESCO has been operating in Nigeria since 1929, generating its own electricity without taking over PHCN.” 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.
In fact, 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. It is in order to initiate this that the Federal Government has retained ownership of the transmission network.
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 addresses 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.)
NESCO, as a private company, has generated and distributed electricity (through separate licences) efficiently for many years in Jos to the satisfaction of its customers; this is a case in point to support private sector investment.
However, there is need to establish a structure for private-public partnership to prevent what we may elegantly describe as turf wars. There are examples in Jos where both PHCN and NESCO are laying parallel distribution facilities in the same neighbourhood. Aside from health and safety issues, what this means is that consumers will be compelled to pay for the cost of multiple infrastructure; whereas one set of infrastructure would have served the populace at a far-reduced cost.
The second issue raised by the unions is that “since 2005, through the power sector reform, the monopoly of NEPA/PHCN was supposed to have been broken with the unbundling of NEPA into 18 companies to work alongside PHCN, yet none of those companies founded by private investors has generated a single megawatt of electricity.”
The EPSR Act does not provide for the 18 successor companies to work alongside PHCN. When the companies are privatised, PHCN, which was established as a holding company, will cease to exist.
On the assertion that none of the 20 private power companies issued license by the Nigerian Electricity Regulatory Commission (NERC) to generate electricity has added a megawatt of electricity to the national grid, it needs to be stated that the enabling environment has been harsh and uninviting. In particular, the tariff regime has not been encouraging and the companies are not charity organisations. Suffice to say that the tariff regime is being addressed by NERC to make it investor-friendly.
The other pertinent question to ask: who are the private power generators going to sell to? Is it PHCN that is not financially viable and would not be able to honour commitments? It is the recognition of this gap in the industry structure that led the Federal Government to incorporate the Nigerian Bulk Electricity Trading Plc, also known as the “Bulk Trader.” Incorporated on July 29, 2010 by the BPE, the functions of the Bulk Trader are:
To undertake the business of trading in the wholesale electricity market as bulk purchaser and the bulk seller of electricity and ancillary services pursuant to the Electric Power Sector Reform Act 2005;
To take over the contract management and obligations of the Federal Government of Nigeria under existing Power Purchase Agreements (PPA);and To do all such other things as are incidental or may be thought conducive to the attainment of the afore-mentioned functions.
Nonetheless, it needs to be stated that Shell, Agip and AES are all operating IPPs and supplying power to the national grid. Shell is generating not less than 450 MW; Agip generates 450 MW and AES produces 200MW. Shell and Agip are oil companies who are not unduly concerned about being owed since they have access to the oil revenue. AES is producing because they have a sovereign guarantee. As such, if PHCN does not pay AES, the Federal Government does.
Perhaps, it is lost on these agitators that the three private investors are generating 1, 100 mw into the national grid. Out of currently available power of 3, 500 MW, the three IPPs are generating about 31 %.
The third matter deals with the claim that the unions have not been informed of government’s intention to privatise PHCN (formerly NEPA.) Recall that stakeholders’ participation in the privatization program which is instituted in law through the Public Enterprises (Privatization and Commercialization) Act No. 28 of 1999 was given tangible expression by the integration of the Nigeria Labor Congress (NLC) into the membership of the National Council on Privatization (NCP) which is the highest policy and decision making body on privatization and economic reform in Nigeria. In the same vein, 22 labor leaders of some relevant industrial unions were made members of all the eleven (11) Technical and Sector Reforms Implementation Committees of the NCP; thus, ensuring the attainment of the desirable goals of vertical and horizontal integration of labor in the privatization process.
In fact, the electricity unions were members of the Electric Power Implementation Committee of the NCP which produced the Electric Power policy and the Electric Power Sector Reform Bill. And Section 28 of the Privatisation Act of 1999 lists NEPA as a candidate for privatisation. Furthermore, the Electric Power Sector Reform Act 2005 provides for the privatisation of the electricity utility. Let us say for the umpteenth time that BPE is implementing the provisions of the EPSR Act.
Moreover, is it not disingenuous for the labour unions in the electricity sector to on one hand accuse the BPE of not engaging them in dialogue and when the opportunity is available for negotiation, they refuse to meet with the privatization agency? An example was on Tuesday, November 2, 2010 when the unions refused to engage with the Bureau at a meeting to discuss labour matters under the chairmanship of the Hon. Minister of Labour.
However, the good faith of the government has been evident. Unlike in previous privatization transactions, President Goodluck Jonathan had approved that N130billion be set aside in the 2010 supplementary budget to serve as financial base provision for the full payment of all financial benefits that would accrue to PHCN workers that would be affected in the process of the reform in the sector. It is apt to point out that the provision of N130 billion by the Federal Government was based on consultants’ assessment of likely liability in the determination of pension claims of all workers of the Power Holding Company of Nigeria (PHCN.) In other words, it is only after negotiations that the final figures will be manifest.
Let us reiterate that under the proposed privatisation strategy for distribution companies, a private sector operator will acquire controlling equity interest (51%) in any of the distribution companies with a view to rapidly improving its operational efficiency. Also, a minority equity interest will be offered States that wish to participate in the privatisation of the distribution companies. The Federal Government took this decision based on the premise to partner with willing and interested State Governments in order to more speedily and effectively deal with emerging transaction and risk issues which, without their involvement, may be difficult to resolve.
Concluding remarks
Bearing in mind the possibility of job losses following privatization, the BPE has instituted a labor policy to take care of such eventualities in a fair, affordable, efficient and transparent manner. The policy has been applied in concluded transactions with positive results. Given its acceptance by affected Nigerian workers, the policy would continue to be adopted in future privatization transactions.”
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