Nigeria’s power sector privatization has been under scrutiny, with experts identifying a critical flaw in the government’s initial implementation. According to Adebayo Adelabu, the Minister of Power, the focus on acquisition capital, the money paid by investors to acquire distribution companies, overshadowed crucial aspects of long-term success.
Adelabu, speaking at the Africa Energy Market Place (AEMP) conference in Abuja, highlighted the importance of a more comprehensive approach to capitalization in the power sector. He explained that while acquisition capital is important, it should not be the sole focus.
“There are a number of capitalization aspects that need consideration,” he stated. “The acquired assets require additional capital to become operational and deliver immediate power.” This “operational capital” was not adequately addressed during the initial privatization process.
The Burden of High-Interest Debt
Adelabu further pointed out that acquisition capital was often acquired through bank loans with high-interest rates. This financial burden placed immense pressure on the distribution companies, hindering their ability to invest in maintenance and expansion.
Missing Pieces: Maintenance and Expansion Capital
The Minister emphasized the critical role of “maintenance capital” – the funds required for day-to-day operations and upkeep of infrastructure. Without these resources, infrastructure deteriorates, hindering service delivery.
“Investment and expansion capital” was another crucial element missing from the initial plan. This capital is vital for upgrading aging infrastructure and expanding capacity to meet growing demand. Many distribution companies currently lack the resources to address these issues.
New Capitalization Model
Adelabu expressed optimism for the future, stating that the Nigerian Electricity Regulatory Commission (NERC) will develop a more comprehensive capitalization model. This model will determine the required capital levels across the entire power sector, from generation and transmission to distribution.
Franchising
The Minister also proposed franchising as a potential solution for Discos (distribution companies) lacking the capital to invest in specific locations. This could allow smaller, well-capitalized entities to manage certain areas within a larger Disco’s territory.
Despite the challenges with the initial privatization process, Minister Adelabu highlighted some positive developments. He noted that the revised electricity tariff structure has been effective. Customers benefiting from over 20 hours of daily power supply have seen a decrease in electricity costs.
NERC Approves Additional Feeders, Downgrades Others
The Nigerian Electricity Regulatory Commission (NERC) has also played a role in improving service delivery. The commission has approved additional feeders based on repairs and renovations to existing infrastructure. These feeders supplement the initial 500 feeders supplying power to Band A customers (those prioritized for improved service).
Furthermore, NERC has downgraded some feeders previously classified as Band A due to their inability to consistently provide the minimum required number of power supply hours. This move, according to the Minister, is intended to protect consumers from exploitation.
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If You Ask Me
While challenges remain, Nigeria’s power sector appears to be moving towards a more sustainable future. Addressing the flaws identified in the initial privatization process, with a focus on holistic capitalization and consumer protection, is crucial for achieving long-term success.
