Power DisCos’ forensic audit bad for economy — economists
July 6, 2020861 views0 comments
- Appropriate, but wrong timing
- Warn license revocation spells economic doom
- DisCos inherited late-life, decommissioning assets
The recent move by the National Electricity Regulatory Commission (NERC) to carry out a forensic audit of the 11 electricity distribution companies (DisCos) in the country due to their perennial sub-optimal performances, has been described by economists at the Institute of Chartered Economists of Nigeria (ICEN), as “appropriate therapy at a wrong time.”
The NERC aims to undertake a technical examination of the electricity distribution firms in a late reaction to recent twitches by the central government to revoke the 2012 World Bank-supervised Nigeria power sector privatization deal.
Specifically, the ICEN experts said, in the case of the DisCos, as in many other downstream asset deal transactions, they (DisCos) ought to have been subjected to ‘due diligence’ to adjudge their reasonable technical and economic competences before arriving at a reasonable value. The same would have gone for the former electricity monopoly, Power Holding Company of Nigeria (PHCN) systems performances for utilization of such data for regulatory and non-regulatory functions.
Friday Udoh, chief economist of ICEN in the south-south zone, told Business A.M. exclusively that “this costly error must be addressed and the accurate state of the country’s electricity infrastructure ascertained first before a ‘forensic audit’ takes place. The responsibility, no doubt falls within NERC’s purview.”
“The following key parameters must be taken into account: the reliability and supply security, electricity behaviour that qualifies it as the most volatile trading article due to its unavailability for storages, thereby requiring a real-time balance between demand and supply. What is supplied must be consumed at any given point in time. Correspondingly, the high fixed cost requires sufficient planning for optimal utilization of the infrastructure capacity to reasonably pay back for the investments, and eventual management of the assets at this juncture. And given the country’s macroeconomic environment, call for more innovative legislation to compensate the pervasive privatization deal,” Udoh said in a personal note to the NERC executive secretary, which was seen by our correspondent.
Without the above-listed issues addressed, the ICEN south-south chief economist said the planned forensic audit of the DisCos’ operations would rather run incoherent with the very basis of privatization.
Udoh, who is a gas value-chain expert, said the sale of electricity infrastructure in the country was slightly skewed against power sector global best practice that is needed for a closure of critical infrastructure sale of this nature.
He informed that the DisCos had “inherited (electricity) assets that were approaching late life and decommissioning phases; besides, these assets were poorly maintained by the defunct PHCN, and could have been responsible for depletion of the operators’ budgets.
He said, the absence of ascertaining the ‘security of supply,’ a critical factor in energy industry that is often addressed to a greater length to get assets’ actual performance state, with a view to ensuring their vitality, was another costly mistake.
In fact, the ICEN south-south chief economist warned against an outright revocation of the DisCos licenses; insisting that it will rather trail off worse fortunes for Nigeria’s already wobbling economy, rather than correct the shortcomings in the conceptualization, planning and implementation of the earlier wire network privatization programme by the Bureau of Public Enterprises (BPE).
“Evidence abound that, a critical content of any reform lies in efficiency of privatization programmes, and in the case of Nigeria’s privatization programme, it was marred by fraud, collusion and secrecy. The residues remain toxic,” Udoh said.
He said, international best practices have it that public utility contract is transacted in a manner that is characterized by transparency, fairness and openness to appropriately benefit all socio-economic and environmental factors.
“Appropriate privatization programmes complement the competency of the regulator to efficiently manage the behavioural changes of the operators; are sensitive to market fundamentals; are responsive to macroeconomic and environmental changes, and add value and premium to the industry, which runs in accountable manner.
The ICEN chief economist listed four distinct attributes of electricity market, which make its regulation riskier than other utilities: striking a balance between supply and demand, given the inability to store unused electricity; reliability of supply, and high cost of power facilities. He said these expose the operators to more risks.