Murky deals cast doubt over Nigeria's power sell-off

ABUJA: For decades Nigeria has failed to fix chronic electricity shortages that stifle growth and help keep millions in poverty.
That is about to change, the government says, when most of the power sector is privatized by the end of the year. Its target is to increase electricity output tenfold to 40,000 megawatts by 2020.
Turning on the lights in a country where power cuts are a daily ordeal could push Nigeria's growth into double digits and help diversify its economy away from oil, which in 50 years has created a super-rich elite but has done little to reduce mass poverty.
Yet since Power Minister Barth Nnaji resigned in August over an alleged conflict of interest, doubts are gathering about the integrity of the process, as oligarchs with scant experience in running power firms line up for a slice of this lucrative pie.
As with Russia in its 1992-1994 sell off of state assets, it is entrenched political and business elites who look set to win much of Nigeria's power sector, even while Western aid agencies are backing the process with tens of millions of dollars.
The government announced preferred bidders for 10 power distribution firms this week and has approved bids for five power plants, a major step forward. But already the companies who lost out and labor unions have said the process was fraudulent and the results to be scrapped.
The wealthy figures behind the consortia bidding already control vast stakes in Nigeria's economy and political machine, and many of the assets only had one approved bidder each. It is often felt that since the oligarchs have such sway in Nigeria, it is better to have them in the process rather than outside it.
In past Nigerian privatization efforts, unqualified bidders and political wrangling caused years of legal battles and delays after assets were awarded. Sometimes funds were diverted to people who failed to revive the firms and left debts unpaid.
Nigeria tried to sell former telephone monopoly NITEL for more than 10 years but buyers who won privatization bids never paid up. After years of legal rows, it remains in state hands.
The stakes are higher for power.
"For a sector being primed for the most comprehensive overhaul in its history, it was perhaps expected that entrenched forces of the ancient regime would not let go without a fight," Nigerian policy analyst Sanya Oni said.
"It is ... the beginning of the long, difficult road."
Despite holding the world's seventh largest gas reserves, Nigeria produces less than a tenth of the amount electricity South Africa provides for a population a third of the size. Some $40 billion has gone into reforms in the last 20 years, says Control Risks, a consultancy, yet power has only improved slightly.
Sorting out this mess would seal President Goodluck Jonathan's legacy. The Power Holding Company of Nigeria is being sold as six generation firms and 11 distribution companies. A contract for transmission has been given to Canadian firm Manitoba Hydro.
Among the figures angling for a slice of privatized power is billionaire businessman Emeka Offor. His company Chrome Group is the highest bidder for firms in the capital Abuja and Enugu.
Offor made his fortune from government contracts, especially under military dictator Sani Abacha in 1990s.
Between 1999 and 2002, Chrome Group worked on a $100 million contract for maintenance on Nigeria's Port Harcourt oil refineries, in Africa's biggest oil industry. They have operated at just 30 percent capacity since, and the state oil firm has said the work was not done properly.
"The turnaround maintenance was successfully completed and duly handed over to Port Harcourt Refining Company," Chrome Group spokeswoman Val Oji wrote in an email, with the relevant completion certificates attached, when asked about it.
Global Witness, a UK-based watchdog, investigated Offor's Seychelles-registered oil firm Starcrest in February. It said it won an oil block in 2006, then within months signed Swiss firm Addax on as 'technical partner' for a $35 million fee.
That deal left Starcrest with a big minority stake, and Addax, the firm with the expertise to produce the oil, paid a $55 million signature bonus. Offor told the NGO that Nigeria's financial crimes commission had cleared Starcrest of wrongdoing.
The deal resembles arrangements common in Nigeria, in which a company run by a local oligarch 'partners' with a foreign firm with the know how, and takes a cut.
Industry sources say power privatization is going on in the same way, which will make it slow and costly, even if it does finally turn the lights on.
Oji cited two transmission lines completed in the northern state of Gombe in 2010 as evidence Chrome had relevant experience.
Another powerful figure lining up is General Abdulsalami Abubakar, who was military ruler for a year after Abacha's death in 1998. He chairs Integrated Energy, which has the preferred bid for electricity distribution companies in Yola, Ibadan and the two covering the commercial capital Lagos.
Local press have reported that former military dictator Ibrahim Babangida is putting his weight behind the North South Power Company, the only consortium approved to bid on the Shiroro plant.
A spokesman for Babangida, Kassim Afegbua, however denied that he was "involved in any power company at all".
Bola Tinubu, former Lagos governor of Lagos, is backing Oando's bid for a distribution company servicing the south, including Lagos. Oando, run by his nephew Wale, is an oil and gas company, but it has made small inroads into power.
It set up the Akute Power company to develop a 12.15 MW power station that now services a Lagos water plant.
Tony Elumelu's Transnational Corporation, which owns, amongst other things, The Hilton hotel in Abuja, is a preferred bidder for the Ugheli thermal power plant.
"None of these guys has much of a background in power. They can't do it alone. They need partners," said Bismarck Rewane, CEO of Lagos-based consultancy Financial Derivatives.
Some do have them. Yet globally respected power companies like AES, Essar and Schneider Electric who showed an initial interest in buying assets in 2010 decided not to join up with Nigerian partners and bid.
Others involved in bids, including Arumemi Johnson, the chairman of airline Arik Air, and billionaire oil magnate Femi Otedola, were banned last month by the central bank from borrowing money due to unpaid debts — poor financing is a key risk to the long-term success of power projects, as the government estimates the industry needs $10 billion a year.
Otedola repaid his debt days after the ban was announced.
"In the history of privatization in this country, the common wealth has largely ended in the hands of senior government officials and their cronies and kin," wrote Mohammed Haruna in The Nation on Wednesday. "Unless the authorities ... guarantee integrity, their privatized offspring can only bring more pain."