Jonathan, power sector and corruption

The campaigns for the 2015 Presidential election and the commencement of the transitional electricity market kicked off at the same time. The relationship between democracy and electricity reform in Nigeria is more than superficial. It is not just a happenstance that it was at the return of democracy in 1999 that serious consideration was given to power sector reform. The Nigerian Electric Power Policy (NEPP) came into being in 2000 as part of the campaign promises of the Obasanjo government. It later became the Electric Power Sector Reform Act in 2005 that inspired President Jonathan’s Roadmap to Power Reform in 2010.

Now that we are entering another significant stage in the power sector reform (that is the stage of full implementation of contract trading) it is necessary to reflect on how things have fared in the sector, particularly regarding the war against corruption, which is promising to be the singular most important electoral issue in 2015 after jobs and security. How has Jonathan administration fared with regards to fighting corruption in the power sector? If we mean to end chronic corruption in the public sector the power sector should be a priority focus area. And any credible evaluation of success in fighting corruption should start with the power sector.

What is the report from the power sector as regards corruption? Corruption is the major reason the electricity industry collapsed in Nigeria. Let us understand the magnitude and varieties of corruption. It is not just about misappropriating billions of naira. It is also about distorting incentives in state institutions such that ultimately they become grossly inefficient and irresponsible. It includes manipulating policies and processes to serve private or group interests to the detriment of public good.

Corruption is dangerous because it hampers economic growth and social development. The World Bank and other international financial institutions have established extensive body of work on the relationship between corruption and economic development. What is clear from corruption and development scholarship is that corruption misallocates resources, increases the cost of business and discourages investment. Evidence shows that no sustained economic development will be possible in an environment of pervasive and chronic corruption.

The electricity industry did not collapse in the late 80s and early 1990s because there was lack of competent engineers. It collapsed because of combination of low funding and corruption. It is noteworthy that until 2011 when the Nigerian Electricity Regulatory Commission (NERC) ordered the audit of the PHCN successor companies, electricity generating and distributing companies had not audited their accounts. That evidence is symptomatic of the total lack of transparency and accountability in the management of electricity services in Nigeria until 2010.

It is to reverse the collapse caused largely by corruption that the NEPP recommended the unbundling and privatization of the state owned utility and the establishment of an independent regulator to ensure efficient and transparent operations. Efficiency will result when decisions by operators are based on sound economic considerations and mandated disclosures and responsiveness to customers, rather than on the preferences and pecuniary interests of political leaders and their business associates.

Corruption in the sector before 2010 goes beyond financial impropriety. It also manifested in deliberate violation of the rules of orderly electricity market because of shadowy but strategic group interests. For example, barely less than two years after the establishment of NERC its Commissioners were sacked in very grievous violation of the Electric Power Sector Act, just to satisfy powerful interests that wanted to roll back the reform. This singular act of wantonness undermined the reform. No single foreign investment came to the sector until President Jonathan restored the integrity of the regulatory commission in 2010. That is how damaging corruption (especially the variant that violates rule of law and due process) can be to a reform process.

The commencement of TEM is possible only because the electricity sector in Nigeria has been largely sanitized. Although we are yet to cure the acute shortage of generation capacity and electricity networks are still fragile, local and foreign investors are seeing clear signs of a well-ordered market and are voting with investment finance. Just last two months a motley of international investors sourced about $900million to finance a 450mw power plant in Edo. This is the first real project-financed power plant in Nigeria and signals the prospects of sustainable private sector investment in Nigerian electricity market. With such investment we can rebuild the dilapidated infrastructure and expand capacity for reliable electricity supply.

Things have changed in the sector since 2010. In the past, we witnessed endless parliamentary inquest on allegations of corruption in the sector. Those inquests consumed the career of many public officials and gutted the prospect of harvesting over 4,000mw from Nigerian Integrated Power Project (NIPP) before President Jonathan revived the NIPP project. Today, although we have undertaken bigger transactions there are no serious reports of fraud. There are no court cases against these transactions except the case of Geometry Power and Intestate that is based on legal interpretation, not on any allegation of fraudulent manipulation of the privatization process.

There is no doubt that President Jonathan has the bragging right of anticorruption in the power sector since 2010. What happened in the power sector if sustained will lead the Nigerian electricity market out of morass of corruption that previous administrations have plunged it into. If the model that worked in the power sector is replicated across other sectors we will Nigeria quickly exit the club of most corrupt countries.

The power sector example of anticorruption proves the superiority of institution building over all forms of personalized and frenzy puritanism. It shows that if we took an intelligent and structured approach to ending corruption we will succeed. It shows further that what is most important for fighting corruption is not throwing people indiscriminately in jail; not waxing eloquent about how corruption is rampant; but rather a compelling disposition for self-restraint and genuine respect for established processes and rules. If you appoint competent and credible officials and allow them to make decisions in line with institutional rules you are doing more for anticorruption than swashbuckling rhetoric

No doubt, President Jonathan’s genuine reluctance to manipulate state institutions and his principled belief that good governance is more a result of strong and competent institutions than hubristic leadership are fundamental ingredients for sustainable anticorruption campaign. For the past four year of courageous and radical leadership in NERC Mr. President has never second-guessed me or pressured me to make decisions that favor anyone. I remember when Governor Amaechi wanted to calve out Port Harcourt Electricity Distribution Company for Rivers State contrary to regulatory due process and Mr. President was disposed to supporting him. But as soon as NERC presents a report to show that action would illegal and destructive of the reform, Mr. President respected the regulator opinion notwithstanding Governor Amaechi’s persistent pressure.

As the electricity market enters into a significant market stage we celebrate President Jonathan’s great contribution to making this market attractive to investors and trustworthy to customers.

Our confidence on the future of financial viability and sustainable improvement of Nigerian electricity market is very high on account of rule-based leadership of President Jonathan.

Dr. Amadi is chairman and chief executive of Nigerian Electricity Regulatory Commission (NERC)