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Why electricity privatisation failed (1) 14 Mar 2024

The title of this write-up is presumptive. Has electricity privatisation in Nigeria failed? The leadership of the National Assembly thinks it has. Many Nigerians think the same way. But some technocrats, especially those who support the exercise, could still argue that the privatisation of electricity supply has not wholly failed. Sure, there are many crises facing the sector post-privatisation. But they would argue that the cup is half full than half empty. They can point to the fact that we could attract more foreign investment into the electricity supply industry than before privatisation as one evidence of some success. But even at that, the nation did not spend so much just to have more investment without adequate, reliable, and affordable electricity for homes and businesses.

A few days before writing this article, there was good news about the commissioning of the Aba Power project after 20 years of setbacks and errors. The Aba Power and Geometry Power projects are two ambitious private investments by former Nigerian power minister, Professor Barth Nnaji, who in 2004 dreamed of providing 24/7 electricity to commercial enterprises in Aba. The event became an occasion to ask critical questions about why the project took too long and why the reforms of the sector have largely failed to yield the advertised prospective outcomes. It critiques the large reform in the electricity sector, especially the privatisation exercise.

For five years, between 2010 and 2015, I sat at a vantage point to observe how things went in the sector as the Executive Chairman of the power sector regulatory agency, Nigerian Electricity Regulatory Commission (NERC). Looking back, I could argue that, in a sense, the programme was designed to fail. This does not deny the good will and commitment of the policy reformers in government from 2001 when the reform kickstarted with the National Electric Power Policy (NEPP). The people involved would have meant well. But, in my view, the privatisation policy has two problems. The first is a modelling problem. Between 2000-2005, the problem of the electricity sector reform was wrong modelling. From 2010 till date, this problem has mutated into the second: poor project management. In this piece, I focused on wrong modelling.

The failure of the design of the power sector reform laid largely on wrong diagnosis that led to inapt directive policy. If the directive policy does not build from an accurate diagnosis, it would lead to a set of wrong interventions.

Interventions can be wrong either because they are not the required actions, or they are applied in inadequate measure or wrongly timed. A strategic approach is one that is based on accurate diagnosis. The challenge is that a good diagnosis is difficult to get. It requires paying good attention. It requires pragmatism and wisdom in counting what counts. The challenge is that most times the urgency of reform does not make for wise and proper attention to be paid to the reality of the problem.

We saw during the height of the neoliberal reform across the developing world a virulent form of this lack of attention resulting in wrong-headed institutional transplantation. This is what the venerable African political economist Thandika Mkandawire calls ‘institutional monocropping’. This approach to reform basically overlooks the reality of the differing contexts of different societies and applies ideological patterns thoughtlessly on non-deserving circumstances.

In the Nigerian case, reformers quickly settled on state ownership as the diagnosis, and zeroed in on privatisation as the solution. Of course, the NEPP listed stages before privatisation, including commercialisation and corporatisation. But their theory of change is hinged on privatisation, and the government failed to properly corporatise and commercialise before ‘boldly’ speeding off to sell off the entire network minus transmission in 2013. Today, the privatisation has not worked because the economics of it that relies on the famous agent-principal problem and soft budget line wrongly presumes that it is ownership rather than governance that determines efficiency. In 2012, before the privatisation, the rate of metering in the sector was about 40%. In 2024, the metering rate is 42%. Every other important indicator looks like this.   

The reform of the electricity sector in Nigeria was based on an incompletely theorised assumption that once you get government off electricity, and get the private sector in, everything gets into shape. To show the degree of faith in the magic of the private sector, the reformers refused to phase the transition to private electricity market. The standard logic from the days of shock therapy is that success requires that you do it in one fell swoop before there is a fight back. Interestingly, the apostle of ‘shock therapy’, Jeffrey Sachs, after his Russian debacle, later wrote a book, End to Poverty, to argue for ‘differential diagnosis’, which basically calls for cautious and differentiation in problem analysis.
 
The apparent problems of electricity supply in Nigeria then and today remain almost the same even with the administration of the privatisation policy. It doesn’t mean that government ought to dominate the electricity sector, or that it was a bad idea to privatise. Rather, the real failure was presuming that the problem was ‘merely’ ownership. Differential diagnosis would have led to structural solutions that required more than change of ownership of electricity utilities. The real-world implication of that would be to make haste slowly and to take seriously the preconditions for effective privatisation.

If we diagnose inaccurately, we model poorly. That is the first cause of the failure of the electricity reform in Nigeria. The prudential guide is this: it is better to be wise than bold in reforming difficult sectors.

Sam Amadi, PhD, a former Chairman of the Nigerian Electricity Regulatory Commission, is the Director of Abuja School of Social and Political Thoughts.