NEGATIVE INCOME FROM PHCN SALE?
By LES LEBA
Public expectation for adequate and stable power supply may have been heightened when President Goodluck Jonathan handed over share certificates to the private investors in five generation companies (GENCOs) and 10 distribution companies (DISCOs) created from the unbundled Power Holding Company of Nigeria (PHCN).
In return, for a total outlay of about $3.3bn (N530bn) to the federal government, the investors have taken over 60% equity and controlling stakes in the DISCOs, while the private GENCOs have been allotted between 51 and 100% in five plants with total installed capacity of about 6000MW.
Furthermore, in order to promote the smooth take off of this exercise, President Jonathan has also pledged that the privatised companies will be handed over without any baggage of debts, as "all existing PHCN liabilities had been pooled together to be separately managed by the Nigerian Electricity Liability Company (NELMCO)", a newly created agency, whose function may rightly be tagged by critics as a duplication of the Debt Management Office.
The obligations to PHCN workers appear to be the most critical component of such liabilities, whereas the extent of other contractual obligations still remains unclear! The Punch editorial of 30th September 2013, however, estimated existing workers' liabilities at about N400bn, while it also suggested that PHCN debts to local and foreign creditors as well as suppliers may be well over N450bn. In other words, while the federal government's total income from the privatisation of PHCNs generation and distribution operations will amount to less than N530bn ($3.3bn), the same government will pay out over N850bn; (i.e. incur a net loss of over N300bn), to finally privatise these PHCN divisions!
Worse still, in the light of the allegedly dwindling current revenue from oil, government may ultimately have no other option than to increase the nation's already crushing debt burden by borrowing at the atrocious and excessive rate of about 14% in the domestic bond market to fund the net loss of over N300bn incurred from the sale of PHCN's 'DISCOs' and 'GENCOs'.
Curiously, therefore, despite the alleged infusion of over $12bn to supplement existing PHCN assets by former president Olusegun Obasanjo, current Power Minister, Chinedu Nebo, recently also observed that an annual average of $3.5bn has been expended by successive governments to raise generating capacity in the last 10 years! Consequently, it seems rather awkward that after government's massive outlay of over $40bn to improve power supply over the last decade, Nigeria would ultimately receive barely $3.3bn as payment for between 51 and 60% of the distribution and generation assets of the parent PHCN!!
Furthermore, despite the alleged poor state of the generation companies, critics may observe that a 6000MW plant at current cost may well exceed $6bn, without the inclusion of the existing extensive property and other infrastructure of PHCN nationwide.
The foregoing may be seen by some critics as a lopsided business model that does not favour our nation!! Conversely, others may argue that the above substantial loss is necessary to finally plug the huge revenue leakages and restore sanity in the business of power supply in Nigeria.
Other critics, including the Punch editorial earlier referenced, have, however, rightly or wrongly alleged that PHCN privatised assets "fell into the hands of companies with spotty records of accomplishment in the electricity business". Such critics are concerned that the new buyers may not be able to attract the annual investment of $10bn that the IMF projects, will be required in the next 10 years to adequately close the power supply deficits. Indeed, according to the editorial, there are indications that the new owners may experience difficulty in raising an initial requirement of over $3.5bn to jumpstart their operations in the short term.
In addition to the above challenges, consumers nationwide are concerned that despite the assurances of the Regulatory Commission, the DISCOs may also rapidly arbitrarily increase tariffs. Indeed, these fears may have been given substance by Robert Yates, spokesman of the distribution companies, at a recent workshop organized by the Bureau of Public Enterprises and NERC. Yates argued that a new tariff structure should be multiple-fold higher than NERC is suggesting in order for the DISCOs to adequately cater for salaries, interest payments to banks and other operational expenses. Yates, therefore, noted that the 'framework' currently suggested by NERC would result in the DISCOs' breaching of covenants with their bankers!!
Evidently, it is clear that the DISCOs do not see NERC as an equitable umpire, as they allege that the Commission appears to be championing the consumer cause rather than establishing a level playing ground for all stakeholders!
Furthermore, despite government's assurances that all labour related outstanding pay issues would be resolved before the physical handing over of the privatised companies, PHCN workers have insisted that some issues still remain unresolved; these include non-remittance of the 2% of the union deductions, as agreed; nonpayment of retirees who disengaged since 2011; non-regularlisation of already identified casual workers; and recovery of the shortfall in terminal benefits from June 2012 till date. It is not yet clear if the payout of about N400bn to PHCN workers has accommodated all the preceding demands; what is clear, however, is that the private investors and the government have remained silent on the demand of the workers for 10% equity shareholding in the privatised companies!
The above notwithstanding, there is still the small constitutional issue about the application of the total proceeds from the sale of PHCN companies directly to the liquidation of outstanding obligations to workers, without prior lodgment in the federation account and proper legislative appropriation as per provisions of Section 162(1) of the 1999 Constitution! In the same vein, the inevitable increase of our national debt by over N300bn as the attendant collateral of PHCN sale without any formal input from the National Assembly, may also be seen as inappropriate, in view of the attendant generational burden of debt repayment for many years to come.
SAVE THE NAIRA, SAVE NIGERIANS!!