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ECONOMIC REFORM IN POWER SECTOR- A CASE STUDY OF POWER HOLDING COMPANY OF NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

In recent years, economic reform especially in the power sector has become important, since the assumption of Olusegun Obasanjo as the president. It has even started in the beginning. For example, it was stated in the bible as follows.

In the beginning God created the heaven and the earth. The earth was without form and void and the spirit of God was moving over the face of the waters. And God said, let there be light and there was light. A god saw that the light was good and God separated the light from the darkness. God called the light day and the darkness the called night. (genesis:]: Vi’-S).

 

It is probably due to the necessity of light that government over the world sees reform in the power sector sine-qua-non for meaningful and veritable nation& development and as part of its effort to provide happiness, for the people. Utilitarian philosophers such as Jeremy I3entham and J.S. Mill, have posited that the primary purpose of government is to provide for the greatest number of the people. And of course provision of electricity is a step on the right direction in noble goal of government, because public administration is goal oriented.

However, virtually all nations of the world have found it necessary to embark on one form of economic reform or the other. Though the condition necessitating the adoptions of reforms varies, the character of the reforms differs from country to country. What is important is the character of the reform agenda adopted or the philosophical foundation on which it is built, virtually all government have given as the main goal which their reform seek to achieve, then enhancement of the quality of life of the people. Put differently the enhancement of the quality of life of people has been cited as the goal of all national development efforts (Alo 2006:47).

A scholar in political economy and development administration have made the idea lucid that economic reform, including its history philosophy and basic tenets are grossly inseparable from the Bretton woods institutions of IMF and world bank. Before the l970s Nigeria was classified by the Bretoon Woods institutions as being under-borrowed (Nwozo 2006:147). Following the deep- rooted macroeconomic and social political crisis in its economy various economic measures have been adopted by Nigeria to correct these macro-economic disequilibrium.

In 1982, the government embarked on austerity measures. Arising from the minimal impacts of the above measures, an extensive structural adjustment progrmame was put in place in 1986, with emphasis on expenditure; reducing and expenditure switch in policies as well as using the private sector as the engine of growth of the economy via commercialization and privatization of government owned enterprise. See SAP in Nigeria causes, process and outcome http://www.gdct.org/pdfglobalaccessed on Jan 25th, 2008; sec also (Toyo, 1990:65-66).

The point being made her is that SAP was the first fundamental economic reform adopted in Nigeria and it embraces privatization and liberalization and deregulation. And this bold name “Privatization” has a big role in forming and initiating a reform in the power sector as available literature made us to understand. Since the adoption of SAP in 1986 by the Babangida government the basic philosophy of all other subsequent economic reforms has not fundamentally differ from the basic tenets of SAP document, even though government tries to contradict this.

When the Obasanjo administration came to power in 1999, it appointed the late Bola Ige as the minister of power and steel even though Ige was from Alliance for Democracy, while Obasanjo is from PDP. The then minister (Ige) promise that by mid 2001, the country would have uninterrupted power supply because the huge decay in infrastructural facilities then and given that electricity is among the cardinal infrastructural facilities need for the required development. But since that 1999, the government has continued to make unfulfilled promises about meeting some power generation target. Bangoshe 2004.

http://vwv.nigiera.villagesqure.corn/inde. php.AccessedonApril9,2008.

It was then realized by the government that National Electricity Power Authority NEPA cannot be solely responsible for power generation alone, and government thus saw the necessity of encouraging the private sector to involve in this power generation. As earlier noted the notion of private sector involvement in boosting economic development is an ideology that is not devoid of new-liberal doctrine championed by IMF and World Bank due to their purported and acclaimed role in economic development of member countries. Reinforcing this idea of privatizing and reforming the power sector and other sectors of the economic. The then speaker of the House of Representatives has this to say;

The main plank of best business practices creating a wholesome business environment is the privatization of state owned enterprise for the avoidance of doubts and for the benefits of numerous interested parties, we state today that the house of representatives is committed to the privatization of all poorly run and heavily state funded enterprise. The benefit to Nigeria and its people of a successful privatization programme are immense service wilt be better run, waste due to mismanagement and corruption will be eliminated and most importantly, scarce naira that is vital to the democratization of prosperity in Nigeria wilt be freed up for the house of representatives to now appropriate it to the peoples school, their roads, electricity etc. instead of NIYEL or NEPA. For example our ultimate vision is to continue the Nigeria government to performing only those functions that the individual citizen is ill equipped to reform. For example the army, Pahy, taxations, prison, customs foreign policy (Na Abva 2000.6).

 

As we have seen in Na Abbas statement here, this was the beginning of the idea of economic reforms as it affects the power sector, under the capacious and all embracing umbrella of privatization. Prior to this however, a NI3PA amendment act had been posed in 1998. The nitty-gritty of this act of parliament was to terminate NEPA’s monopoly over the generation, transmission and distribution of power and hopefully encourage private sector to invest in power infrastructure. But ending this National Electricity Power Authority NEPA monopoly didn’t seem to have the desired effect of sending private operators scrambling to enter the power supply market. This was probably because the laws governing how these private entities would operate were not clear. how much tariff could they charge, the lowest level of services they were permitted to offer customers, because of the un-clarity of all these matters, things were not as easy as expected.

In an attempt to give a devastating blow to this nagging problem, the electric power sector reform act was passed after much delay in 2005. this act among other thins established the Nigeria electricity regulatory commission (NERC) whose responsibility is to license companies to generate, transmit and distribute electricity and setting up or electing the legal instrumentality, within which these companies will operate, and this will create competition which will be beneficial to the consumer. Bangoshe: 2004 http://www.nigeriavillatage-square.com/indexphp.

It was democracy which president Obasanjo wanted to maximize its dividends that has prompted this reform in the power sector. This logic suggest that there is an intricate like between democracy and economic reform which ushers in prosperity, of course reform literally means change brought about within a system, usually by peaceful and incremental measures. It implies economic improvement and to Obasanjo, it was a step in the right side.

It should be noted that it was in order to attract private sector investment and sustained the development of the power sector to ensure efficient supply in the country, that the (NCP) national council for privatizations decline the objectives for power sector reform as follows:

  • To promote competition to facilities more rapid provision of services through out the country.
  • To create a new legal and regulatory environment for the sector that establishes a level playing ground, encourage private investment and expertise and meet social goals.
  • To restructure and privatize the NEPA.
  • To encourage the successors to NEPA undertaken an ambitious investment programme.

The committee responsible for implementing the privatization of National Electricity Power Authority NEPA called the electric power sector implementation committee with the advice of reputable power sector consultants put together a power policy approved by the Federal Executive Council (FEC) envisages a regulatory reform of the power sector as follows:

  1. Transition state-characterized by private power generation through independent power producers (IPPS).
  2. Medium term after the unbundling and privatization of National Electricity Power Authority (NEPA) is completed.
  3. Long run competition structure-it is envisaged that during this phase, the various power generation transmission and distribution companies will be operating optimally.

The above are the three state of the reform as envisaged in the power sector. (Power sector reform:

http://www.bpeng.org/ne/donlyes.accessedApril9,2008).

Based on the above facts, the Obasanjo administration 199-2007 has really taken expand the existing generation capacity by building plants at Geregu (in Kogi), Papalanto, (Ogun), Alaoji (Abia), and Omotosho (Ondo) and encouraging independent power producers to build and expand plants at Afam, Bonny, Kwalc, Abuja, Obajana and Enugu. The expectation was that once all the plants are completed, the total power generating capacity of all plants in Nigeria will be over 10, 000 mw, for a population of about 140 million. The administration of Obasanjo saw this as a good process of achieving success in the power sector. This is because when the Obasanjo’s government was sworn in on May 29, 1999, the electric power output was very low at between 1,400 mw out of an installed capacity of about 6,5000 mw, it then thus represented a power crisis and the expectation were high that an immediate improvement was needed. Agbo 2007:28.

Just as government started executing projects to increase capacity to 10,000 mw in 2007 as earlier stated here, a political complication in the Niger Delta intruded and a process of reversal began that whittled down output to between 1,400 mw and 820mw in March 2007. This is contrary to what was earlier envisaged in the power sector reform. On February 2007, the militants in Niagara Delta struck again, cutting off gas supplies to Afam power station in River state with an installed capacity of about 960mw. This explains the direct relationship between democratic dividends and economic reform. Consequent on the above cutting down of supplies by the militant youths output plummeted to less than 1200mw. Thus on account of the above destruction perpetrated by the militant Niger Delta youths who have been restless because of the relative deprivation they suffered, Obasanjo himself was not equally happy.

The then president Obasanjo was disappointed that in spite of the huge human and material resource invested on the power sector reform, very little has been achieved, his aim was to put an abrupt end to the long lingering power nightmare. This has far reaching consequences for Nigeria economy. These crises of the power generation has made Nigeria the highest consumer of generators globally, worsen capital flight outside the economy, increased the cost of production and stilled growth of small business. The Manufacturers Association of Nigeria, (MAN) say the cost of production is up to 60 percent while the Bureau of public enterprises, (BPE) estimates, the economic losses to black out annually at and 1 billion sec tell May 2007:29.

However as earlier noted in this work Nigeria electricity regulatory commission NERC) is purely responsible for monitoring and regulating electricity in the country under the power sector reform between 1999-2007. The then president Obasanjo nominated seven members as commissioner for NERC. The commission is also responsible for maximizing access to electricity services by promoting and facilitating consumer connections to distribution system in all the states, through the establishment of the national grid-the power transmission infrastructure that includes the cables, pylons and transformers, and that transport electric power to various distribution sub-stations across the country. in the reform on electricity, the NERC will ensure that the disco-distribution of energy to customers stacks to an agreed level of customer services. The Genco will the pump energy, while the tranco will then transmit it to the locality is which the disco operates. With all these in the power sector reform, the hope was the NERC will ensure that the discos stick to an agreed level of costumer’s service senate respectively with Dr. Ransome Owan as its chairman.

The reform in the power is seen as the responsibility of the NERC which was established preoccupation in this research work is to examine how thc democratic ruler ship of 1999-2007 under the then president Olusegun Obasanjo had lived up to expectation in the power sector reform or more lucidly whether the administration (Obasanjo’s administration) really worth its salt in the economic reform, it purports to champion especially in the power sector.

1.2 Statement of the Problem

The economic reform embarked upon by the administration of President Olusegun Obasanjo between 1999 and 2997 has laudable promises, which it supposes to fulfill. The aim of the reform is to improve the welfare of the people by improving electricity generation, distribution and transmission. But unfortunately, despite the able promises not much has been done in the sector. Electricity supply is still epileptic; many manufacturing companies still depend on generator for the energy required for production of good and services. Base on these nagging problems of power failure in the midst of the economic reform embarked upon between 199-2007 on the power sector, this research will be guided by the following questions:

  1. How far does the incessant power outrage associated with the power sector impact on economic development of Nigeria in the face of reform?
  2. Does the reform in the power sector actually justify the staggering amount of 16 billion US dollar spent by Obasanjo’s administration on the sector?
  3. How does the reform in the power sector brought fundamental positive changes since the reform of president Obasanjo?
  4. What are the implications of the reform?
  5. What are the possible ways or the remedy?

 

 

1.3     Objectives of the Study

The cardinal objectives of this study are to take a look at economic reform in Nigeria, focusing particularly on power sector.

  1. To investigate if effective economic reform in power sector will promote industrial activities of the nation’s economy.
  2. To discover if the reform in the power sector actually justify the staggering amount of resources spent on the sector by Obasanjo’s administration.
  3. To examine the extent to which the reform in the power sector has brought fundamental positive changes during the administration of president Obasanjo.
  4. To find out the implications of the reform.
  5. To suggest ways of correcting it.

1.4     Significance of the Study

The beneficiaries of these studies in the nation are at large, because they will all enjoy significant improvement from the power sector. This work has three specific significances. It has primary and secondary significances. In the primary significance; it will contribute to academic realm which significance in the sense that it will serve as a source of intellectual poor for those conducting further research work about economic reform and how it pertains to the power sector, thus adding to the numerous works available in this area of study. Other significance are;

  1. Policy makes will definitely benefit from the result of this work because it will serve as a source of reference in policy formulation concerning the power sector.
  2. It will enable other government in Nigeria after Obasanjo’s government to know how best to tackle the problem of power sector. Etc.

1.5     Scope and Limitation

This work covers economic reforms in power sector of Nigeria with emphasis on Power Holding Company of Nigeria Plc it will x-ray Obasanjo’s economic reform as it affect the power sector in Nigeria between 1999-2007. in doing this, selected personnel and department in Power Flolding Company of Nigeria Plc Ikeja and Shomolu District will be covered.

The main limitation of this research is divided into three parts.

  1. The selected sample area (PHCN, Plc IkEja and Shomolu District in Lagos State) may not be the true representation of the population of the study.

2. Few literatures exist on economic reforms in power sector

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