Sam Amadi: Power sector privatisation was designed to fail

Sam Amadi, former chairman of the Nigerian Electricity Regulatory Commission (NERC), says the privatisation of the power sector was designed to fail.

In a series of tweets, Amadi said the privatisation process could not produce the desired results because the power assets were sold to investors who lacked the financial and technical capacity.

The sector was privatised after the unbundling of the Power Holding Company of Nigeria (PHCN) in November 2013, as private investors took over distribution and generation firms “to ensure adequate, regular and stable supply of electricity to the consumer at a reasonable cost”.

“The power sector was designed to fail. We failed to corporatise and commercialize before privatizing; we privatize senselessly without paying attention to context and corporate governance and regulatory regime; we sold to investors who lacked capacity,” he said.

“We had conducted three tariff hike before December 2015. Did any of these hikes resulting in any significant improvement in revenue or service quality? No. Why because the problem of the sector is not mainly tariff.”

Amadi argued that the challenges in the sector go beyond tariff increase, as such move would force manufacturers off the grid.

“Cost reflective is important. but excessive tariff hike is problematic because it cannot be collected and in a country with poor supply the propensity to pay is low,” he said.

“When NERC conducted “Fit and Proper’ test on all the preferred bidders, only one (or none) has the requisite financial and technical competence to effectively manage the network. I took the report to the VEEPEE to argue that none of these firms are fit. VEEPEE was alarmed and set up a committee with BPE, MOP and NERC.

“We later discovered that BPE amended the TOR to reduce the threshold or financial and technical capabilities. The World Bank doubted that we could sell the discos. We surprised the World Bank and we rejoiced but we did not know we sold to ‘straw-men’.

“The meeting called against me by Minister and DG BPE that I was against privatization because at the villa I advised the DG BPE that so much faith in haste privatization is not justified by theory and practice, I hate to say I have been proved right.”

CHIEF FALSEHOOD: that the removal of collection losses caused the lingering of failure in the power.
TRUTH: The power sector was designed to fail. We failed to corporatise and commercialize before privatizing; we privatize senselessly without paying attention to context and

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— Sam Amadi (@SamAmadi) June 13, 2019

corporate governance and regulatory regime; we sold to investors who lacked capacity, etc. Eyo should remember that we had conducted three tariff hike before december 2015. Did any of these hikes resulting in any significant improvement in revenue or service quality? No. Why

— Sam Amadi (@SamAmadi) June 13, 2019

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because the problem of the sector is not mainly tariff. Cost reflective is important. but excessive tariff hike is problematic because it cannot be collected and in a country with poor supply the propensity to pay is low. Eyo ought to know that when @NERCNG conducted "Fit and

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— Sam Amadi (@SamAmadi) June 13, 2019

Proper' test on all the preferred bidders, only one (or none) has the requiste financial and technical competence to effectively manage the network. I took the report to the VEEPEE to argue that none of these firms are fit. VEEPEE was alarmed and set up a committee with BPE, MOP

— Sam Amadi (@SamAmadi) June 13, 2019

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and NERC. We later discovered that BPE amended the TOR to reduce the threshold or financial and technical capabilties. The World Bank doubted that we could sell the discos. We surprised the World Bank and we rejoiced but we did not know we sold to 'straw-men'

— Sam Amadi (@SamAmadi) June 13, 2019