The end of the Road for PHCN

Electricity union

After so much motion without movement and billions of naira without a visible impact, the critical power sector reform is gathering momentum with the recent winding up of PHCN. But there are pockets of resistance, writes Malachy Agbo.

Sometime in 2007, a member of the Lagos State House of Assembly, Hon. Sanai Aguniade and Chairman, House Committee on Commerce and industry raised a motion under matters of urgent public importance. He brought to the fore reports in the newspapers that some manufacturing companies in Nigeria were moving to Ghana. He said the manufacturing companies in Nigeria were already folding up and were relocating to Ghana because of the country's acute power shortage.

He further stated that the implication for the nation was high unemployment rate and increase in criminal activities. “Manufacturers in Nigeria are crying over the power situation in the country, which is the bane of our manufacturing sector,” he said.

The closure of industries in the country is not a new thing and is a source of worry to Nigerians who are concerned about the development and growth of the country's economy. Virtually all homes, artisans and industries, rely primarily on alternative sources of power, which is rather expensive. This has invariably increased the volume of petroleum products consumption in the country, and has continued to exert pressure on the naira in the foreign exchange market and depletion of foreign reserves.

This fact has caused analysts to raise doubts over the federal government's vision 20:2020 target, which they say will be a pipe dream if the country does not reverse this ugly trend urgently. They argue that the mark of any industrialised nation is steady power supply, as it attracts investments and creates employment opportunities in the economy. 
Taking the opportunity to repeat the success recorded in the country's telecommunications sector, the federal government during the administration of President Olusegun Obasanjo enacted a new law to repeal the Electricity Act and replaced it with Electric Power Sector Reform (EPSR) Act, 2005, aimed at transforming the country's comatose power sector.  

The EPSR Act

The Electric Power Sector Reform Bill, signed into law on March 11th 2005, enables private companies to participate in electricity generation, transmission, and distribution. The signing into law of the bill ushered the restructuring of the sector and the privatisation of the electricity sector. The Act further provided for the establishment of the Nigerian Electricity Regulatory Commission (NERC) to monitor and regulate the power sector as it undergoes reform. The law also terminated the existence of the National Electric Power Authority and in its place, established the Power Holding Company of Nigeria, which was issued a temporary license.

In accordance with the EPSR Act, the federal government duly incorporated and constituted the board of directors of PHCN, as a public limited liability company mandated to take over all the assets and liabilities of NEPA. The Act also provided for the unbundling of PHCN into new business units comprising six generation companies, 11 distribution companies and one transmission company, which will be handed over to private sectors through outright core investor sales and concessions.

Under the Act, PHCN was required to remain in existence for only eighteen months, following which its staff and other assets and liabilities were to be assigned to the new business units created from its unbundling.

Power Roadmap

As part of this administration's transformation agenda and in the bid to address the perennial problem of inadequate public power supply, President Goodluck Jonathan on Thursday, August 26, 2010, launched the roadmap on the power sector reform to stakeholders and investors in the power sector.

While unveiling the roadmap, the president in clear terms highlighted the federal government's plans to divest of its interests in all but one of the eighteen successor companies. It further unveiled plans to launch the multiple-year tariff order that will usher in a phased increase in electricity tariffs, the establishment of the bulk purchase company in the industry, the National Electricity Management Company that will assume the stranded assets and liabilities of PHCN when the latter is wound up, and market rules for operators in the sector.

Giving the Reform Bite

Five years after it was established, PHCN was eventually wound up with effect from January 1, 2012. Subsequently, the minister of Power, Professor Bart Nnaji effected the redeployment of PHCN staff at the corporate headquarters in Abuja to its successor companies.

The winding up of PHCN was done in compliance with the EPSR Act, which empowers the National Council on Privatisation to incorporate an initial holding company within six months of the coming into force of the Act. This holding company would assume the staff, assets and liabilities of the defunct National Electric Power Authority (NEPA).

Equally, the NCP was also mandated under Section 8 to create a number of successor companies which will assume PHCN staff, assets and liabilities. This was to be done within eight months after the incorporation of PHCN. In line with this provision, NCP created six (6) generation, one (1) transmission and 11 distribution companies, in addition to other marketing, bulk purchase, and liability asset management companies.
Moreover, the EPSR Act also mandates NERC to issue an interim licence to PHCN which shall be valid for a period of not more than 18 months. NERC duly issued this licence in 2006 for the period required by law. What this means is that, by law, PHCN should have ceased to exist by 2007.

Staff Kick

But the winding up of PHCN has not gone down well with members of the National Union of Electricity Employees (NUEE) who penultimate week threatened to down tools and subsequently cause a nationwide blackout if the federal government refused to take definite steps towards resolving all labour related issues prior to the liquidated PHCN within 48 hours.

The union members who began what it called an 'indefinite peaceful protest' against their scheduled transfer to the various PHCN successor companies at the corporate headquarters of PHCN in Abuja, stated that government has remained hypocritical in its handling of labour-related issues in the reform programme. Earlier this month, Professor Nnaji was also briefly detained by workers over the issue during a visit to PHCN's Abuja office.

In reaction to the workers allegations, the ministry said that the process for the transfers was done without prejudice to prior agreements reached with the workers on their entitlements, including the 50 percent salary increase which the government had granted the workers. “The transferred workers shall enjoy their enhanced salaries, benefits and allowances in which ever successor company to which they have been redeployed.
“In particular, workers should note that their 50 percent salary increase arrears for June, July and August 2012, plus their transfer allowances and their January allowances will be paid at their new stations,” said Ogbuagu Anikwe, media aide to Nnaji.

No Going Back on Reform 

Reacting to resistance by workers, analysts were of the opinion that the action of the minister was in the right direction, as the country cannot afford to wait a second longer than necessary to see an improved and reformed power sector. “In our view, disbanding PHCN and distributing its assets amongst the successor companies designated for privatisation is one of the key steps towards rectifying the country's dysfunctional power sector,” said Renaissance Capital, a leading financial advisory firm.

Rencap further stated that whether the current sector reform initiative, under the direction of Professor Nnaji, can overcome opposition from entrenched interests and build on this kind of success remains to be seen. “What is clear to us though is that it represents the best chance in recent memory for the country to remove a major obstacle to the economic and social development of the country that has been promised for so long,” it said.

Furthermore, other experts concurred that reform of the power sector was long overdue as many industrialised countries like China and very small countries like Bolivia had initiated reforms in accordance with their own needs and circumstances. “Both developed and developing countries have embarked on a programme of liberalising and reforming their power sectors. I have no doubt in my mind that the power sector reform will improve electricity supply, improve cost recovery, and increase the availability of investment capital,” said one analyst.

On the issue of cost recovery and in order to guarantee the financial viability of utility infrastructure in Nigeria, one expert also added that NERC should enable independent power producers to sell power to the national grid and recover their costs. “The reforms should also transform for the better the quality of customer service offerings as well as the provision of pre-paid meters to enable consumers manage their electricity consumption each month,” he said.