Thursday, 20 June 2013
Power Sector Reform: TCN, Manitoba And Suggestions For The New Power Minister By Tunji Ariyomo
At face value, the contract between the Federal Government of Nigeria to cede the management of the National Transmission Company (TCN) of Nigeria to Manitoba Hydro International of Canada appears to be a good one. Manitoba Hydro International (MHI) is a real company. Its owner (the parent company) has proven experience in generation, transmission and distribution operations. The company is a wholly-owned subsidiary of Manitoba Hydro (MH) of Canada, which in turn is fully owned and closely regulated by the provincial government of Manitoba, Canada. I warned, in a 4-page brief that I sent to Prof. Barth Nnaji in May 2012 through his Technical Adviser on Media and Communication, Ikeogu Oke, that as is typical with the Nigerian state, we seemed to have again embedded landmines in an otherwise potentially good concept.
I reproduce below the relevant portion of that brief:
“The responsibility for the management of the entire national power transmission backbone covering the 910,768 sq km of the nation’s land space is being outsourced to one single monopoly. It is difficult to conclude that this is the most efficient decision among competing alternatives with similar success and risk factors. A critical point is being missed here – corresponding impact of decision on the reform’s capacity to act as stimulant for massive job creation, widespread private sector growth and knowledge transfer along the transmission corridor as well as the potential to impede the promotion of fair consumer price. Paul K. Ogden (2009) described this as ‘creating a government sanctioned monopoly for a private company’. It also does appear that rather than receiving payments from this contract, government of Nigeria would be paying the platform operator. This is awkward. It directly negates the entire narrative behind a private sector led electricity sub-sector while potentially leaving room for collusion and ultimately corruption.”
My concern was propelled by the following factors:
1. Inviting an external operator (supposedly a private company) to manage a national transmission company, being manned by Nigerian civil servants with full office complement and official roles is incongruous and a potential recipe for avoidable conflicts, and in the extreme, sabotage.
2. Inviting a single private company to manage the national transmission company as a business enterprise is undoubtedly an endorsement of a private monopoly and a blow to government’s effort at market liberalization.
3. The envisaged impacts of privatization on the reform and its capacity to stimulate massive and widespread competitive private sector jobs could be undermined by a single monopoly.
4. Most frustrating concern is the realisation that rather than outright concessioning of operations and incidental administrative concerns over transmission acreages to private sector platform managers, it is the public institution itself that is being brought under the control of a private concern.
5. Indigenous private sector driven growth and knowledge transfer along the transmission corridor could be impeded.
6. Less contentious and alternative business models exist that could allow Manitoba Hydro to actively participate in the Nigeria’s electricity subsector in ways that suit its capacity and experience and that can yield a win-win scenario for the private sector and the relevant or corresponding national public institutions.
7. Manitoba of Canada claims that one of its key objectives is to reorganize the Transmission Company of Nigeria such that its function as a Transmission Service Provider (TSP) could be separated and for the TSP to become a privatised commercial company. If that is the goal, why can’t the Nigerian government accomplish that objective on its own ab initio or right away?
Some sacred facts:
As at 2009, Manitoba Hydro’s parent company has about 527,000 electric power customers and 263,000 natural gas customers (Please see 58th Annual Report of the Manitoba Hydro-Electric Board, for the year ending March 31, 2009, Winnipeg. p. 119). Ironically, while the Nigerian National Transmission Company is being put up for management under the Manitoba Hydro International of Canada, the Manitoba Hydro Act which governs Manitoba Hydro and its subsidiaries contains a provision prohibiting privatization of Manitoba Hydro without a referendum by voters of Manitoba [Section 15.3(1) of Manitoba Hydro Act as amended]. This is perhaps why Manitoba Hydro itself is already accustomed to being a monopoly operating primarily in the interest of the province of Manitoba in Canada. It is the sole commercial provider of electrical power in that province. It is not unlikely that the quest to attract more dollars for its domestic survival informed the expansion that led to the formation of a child company – the MHI. It should be noted that there is nothing wrong with this. It is in the best interest of Canada or the Manitoba government to so do. Something is however wrong, when a nation like Nigeria cannot learn from the model that has made Manitoba of Canada - despite being a Crown corporation (government company) - such a thriving success since its formation in 1961. Of course, one finds it a bit ironical that while Manitoba remains solely a government owned company in Canada with a legislative protection to prevent its privatization, the company has announced that one of its key objectives is to reorganize Transmission Company of Nigeria such that its function as a Transmission Service Provider (TSP) could be separated and for the TSP to become a private commercial company (Note: this writer is not against privatization). In fact without the approval of the Governor of Manitoba, it is unlikely that MHI would be able to invest in Nigeria beyond $5m [Sections 15(1.3) and 16.1(4) of Manitoba Hydro Act]. With the way the current contract is structured, it is not actually investing in Nigeria anyway. It is Nigeria that is investing in Canada (call it knowledge or knowhow procurement).
Suggestions (An alternative path):
While Nigeria’s penchant for solving problems by creating newer problems is legendary, another past time of Nigeria is the capacity to complicate simple things.
1. A better model for the operation of the national transmission backbone is to end the era of treating the entire transmission system as a monolithic structure by dividing the transmission backbone into at least six (6) autonomous clusters or transmission corridors within a single but flexible national grid system (look at it as regional grids as in Canada). This suggestion takes into consideration; the transmission practice in other countries, Nigeria’s large population, the reality of the age-long difficulty of the Nigerian bureaucracy to successfully manage chains of processes. It is particularly important to note that the Manitoba Hydro experience in the province of Manitoba in Canada is such that the company is saddled with the management of transmission in that province only. Other Canadian provinces like Alberta, British Columbia, New Brunswick, Newfoundland, Ontario, Prince Edward Island, Quebec, Saskatchewan, Yukon, Northwest Territories and Nunavut have different companies in charge of transmission. Basically, Canada has three power grids: the Western grid, the Eastern grid, and the Quebec grid, which includes Atlantic Canada while transmission lines in a given area may be owned by a single company or by a number of different companies (look at that as some quasi-consortium). This model wherein transmission companies operate independent of generation and distribution companies and in conjunction with then where practicable has been successfully practiced in Canada and the United States.
2. Instead of a management contract to oversee the TCN, each of the six clusters in Nigeria would then be concessioned or outsourced to separate private companies as transmission cluster operators – with each operator bearing its name! E.g., South-East Transmission Cluster outsourced to a consortium of Manitoba HI of Canada and Emeka Offor Eastern Power Ltd, North-East Transmission Cluster concessioned to a Consortium of Scotish Power UK and Dangote Power Nigeria, South-West Transmission Corridor concessioned to a consortium of General Electric US and Glo Energy Nigeria etc. Each will get paid using a sharing ratio approved by NERC upon TCN recommendation on per kWh (taking into consideration the kV transmitted) thus ending need for government to be making any payment (as currently envisaged in the TCN-Manitoba contract). This is a strategic incentive for the expansion of generation capability in that zone because naturally, the more kWh, the more profit to the cluster operator (and the more electricity supplied to the homes of our people).
3. If the nation adopts existing national geo-political zones because of contiguity, this would promote efficiency and mitigate risks by isolating, limiting and curtailing them (E.g., a consortium of Chevron Grid Limited and Ebele-Etibet-Wilberforce Power Limited would likely better handle transmission infrastructure issues including vandals and saboteurs in the South-South than a company with headquarters in Abuja or Lagos overseeing the 910.768 sq km national space). Such a company is also likely to be interested in expanding its generation capability by investing in generation knowing full well that is it to its direct benefit if it is able to provide steady supply to distributing companies. The implication of this is that instead of a single transmission backbone operator called Manitoba, there would be a minimum of six such companies (or more as TCN may decide) managing different regional transmission corridors or clusters while the role of the TCN will be deprecated to that of a market facilitator and sector owner – but remaining chiefly a government entity – while actual technical and operational conducts with regard to the national grid in the various clusters are being executed by private sector players with the technical know-how and wherewithal.
4. This model will see the TCN playing the role of a sub-sector midwife for these transmission corridor operators and helping to facilitate their smooth relationship with existing generation companies in their zones through the Bulk Electricity Trading Company (this should never have been a company though. It should have been a self regulatory business and legal process) and relating actively with NERC on bureaucratic issues especially in relations to helping with initial facilitation of relationship among cluster transmission managers and local distribution companies, helping to make and enforce interconnection rules to get the transmission networks interconnected into regional and national networks (thus providing adequate redundancy and multiple alternative routes for power to flow and for its sale as a commodity without barrier), reviewing transmission specific reliability standards and acting as transmission specific data custodian.
5. In this model, the TCN does not necessarily have to be a company but a small, compact and efficient government agency. Some of its unstated roles could include facilitating the transfer of technical knowhow between the foreign firms and Nigerians and helping to warehouse critical data for planning purposes as well as maintaining a unit dedicated to transmission-specific research and development.
If the Manitoba and TCN deal has attained an irreversible status, then very little could be done at this stage until perhaps the initial contract runs its course. If however it is not final yet as several newspaper reports continue to suggest, then I will strongly recommend that the new minister, Prof. Chinedu Nebo, takes a look at this alternative as well as other ideas that other knowledgeable engineers on the subject matter would be passing to him and re-adjust the envisaged relationship with this company. The Minister should also lead the charge on the need to amend enabling law to empower direct state and local government ownership and participation. As I stated in an earlier article, the 2012 well celebrated empowerment of states and LGAs to participate in the power sector reform “is superficial as it is solely within the limitation imposed by Section 14(b), Part II of the Second Schedule (Concurrent Legislative List) of the Nigerian Constitution which restricts state’s investment to ‘areas not covered by a national grid system within that State’. Any strategic manoeuvring beyond this constitutional intendment without actually amending the constitution to remove restrictions imposed upon states and local governments would limit the capacity of states to be real part-owners of sector investments, promote conflicts and open up future avenues for possible abuse which could result from socio-political differences in a nation as diverse as Nigeria ... My position on this has been vindicated with the attempt to shut out some states while allowing some even when it is obvious that there would be no way to justify any technical or financial superiority since the states are peers.”
What further evidence do we need than the Canadian model from where we sprung Manitoba Hydro? A study of the entire Canadian electricity management system and regulatory framework will open the eyes of Nigerian managers so they can appreciate how a massive electricity infrastructure for a population of 167million people must never be managed from a unitary stand point. We can only get it right if we are doing the right things in the best interest of our people. Doing the wrong thing with passion, zeal and commitment would only continue to lead to ‘successes’ only government officials can see.