SF

Good one, Habu. I do not want to sound like an alarmist, but the truth is that for us to make any meaningful progress in the power sector, the government may first need to disband the existing DisCos and rethink the entire structure. Except for perhaps two or three, most of them are simply not viable. And they were arguably set up in a way that made long-term success extremely difficult. The problem dates back to the 2013 privatisation. When I say they are not designed to make it, I do not mean that condescendingly. It is simply a reflection of the underlying economics of the sector. There is a fundamental market failure here. Market failure occurs when the private sector is unable to allocate goods and services efficiently, resulting in a suboptimal outcome for society. There are several causes of market failure, but one particularly relevant to this discussion is the problem of public goods and non-excludability. This happens when people can benefit from a good or service without necessarily paying for it. Where it is difficult to exclude those who do not pay from consuming the service, the private sector faces a problem in recovering its investment. In the power sector, the distribution infrastructure that makes it possible to measure, control and charge for electricity consumption is particularly complex. We are talking about metering, transmission, protection and control systems, among other things. The infrastructure required to ensure that consumption can be properly measured and paid for is not straightforward to build or manage. Transmission, for instance, remains under public ownership because of its strategic importance and the natural monopoly characteristics of the segment. This is one of the fundamental differences between what happened in the power sector and what we saw with private sector participation in telecommunications. In telecoms, operators had relatively greater control over the infrastructure through which their services were delivered. This made it easier to identify individual customers, measure consumption and charge accordingly. The economics of recovering investment were therefore considerably more straightforward. Some time ago, a senior finance professional with a strong background in infrastructure financing, and one of the pioneers of project finance in Nigeria, already explained some of the fundamental issues in there. During the 2013 privatisation, however, some of the entities that acquired the DisCos did not have the technical expertise or financial capacity required to run businesses of this nature. Some took on dollar-denominated debt, much of it short-term, to acquire assets in a sector that requires some of the longest-term and most patient capital…. That alone was a fundamental mismatch. Today, most DisCos lack the capacity to make the investments required to fix the underlying infrastructure problems. They are largely dependent on tariff collections to fund their operations and investments. But under the current circumstances, generating sufficient cash flows from customers is just very difficult. It is not happening. It won’t happen. Look at MTN Nigeria, for instance. The company committed enormous amounts of capital to building its infrastructure before it could fully monetise the opportunity through appropriate pricing. That is how value creation in infrastructure businesses often begins. You need serious equity capital, a long investment horizon and the capacity to absorb years of investment before the returns become meaningful.