Interview by Xan Rice
Financial Times: How big is the unmet demand for power in Nigeria?
Atedo Peterside: The gospel truth is that nobody knows. All the experts appear to be just guessing. What we do know is that, as soon as the privatisation is finished and infrastructure improves significantly, there will be a surge of new demand. There are companies that never bothered to hook up to the national grid, but soon they will. The growth in demand will be exponential. That’s why you have all the global power company CEOs coming to Nigeria because they can smell what’s happening. If you are the boss of GE, you don’t have to be a genius to know that you are not going to sell power plants in Spain, Portugal, Ireland or Greece. If you want to go hunting, go where the ducks are flying. For the power sector, that’s Nigeria.
Financial Times: Why has it taken so many years for reform to take place?
Atedo Peterside: Vested interests. We have had a huge army of politicians, contractors, civil servants, employees – you name it – milking the system by getting, executing or overseeing power contracts from the government that did not translate into getting light into our houses. The whole thing was a racket.
Financial Times: Why did Nigeria decide to privatise all the assets at once?
Atedo Peterside: Some countries have done it one piece at a time. That way, big investors can stay out and wait to see what happens. We opted for a big bang approach. I always argued that the political backlash from selling one asset is going to be the same as for selling all of them. And that way you are telling investors: the game is on. It made sure that every serious power company in the world was going to take notice.
Financial Times: How much interest was there in the process?
Atedo Peterside: More than 400 companies responded. But it’s a long journey from showing interest to making a bid. The participation fee was only $20,000, but putting a proper bid together would cost at least $1m. People used to make a whole lot of noise about how Nigeria auctioned its GSM licences transparently. Putting five guys in a room and asking them to bid for a GSM licence is a no-brainer. You cannot compare that with the complexity of having 400 core investors competing for 17 different assets with all the other issues like managing the existing infrastructure and resistance from labour.
Financial Times: How confident are you that the winning bidders for the five gencos (generating companies) and 10 discos (distribution companies) sold so far will be able to come up with the money?
Atedo Peterside: I do not envisage any serious problems. All the bidders passed our financial adequacy tests. They invested millions in the bids. Then they put up bank guarantees for 15 per cent. Now they have all made a 25 per cent down payment that they will lose if they fail to come up with the balance. So they have a lot at stake. They still have six months to come up with the rest.
Financial Times: How transparent was the process?
Atedo Peterside: One hundred per cent. We stuck to the rules from the outset and all the way through. When they had the first deadline in mid-July 2012 for the submission of sealed bids for the six gencos, the local media reported that various bidders were late, including a group linked to [Nigerian business magnate] Aliko Dangote. No exemptions were granted and so all the late bids were turned back. It sent a powerful message: if the rules would not be changed for the richest man in Africa then they could not possibly be changed for any other group or person.
Financial Times: Some people have questioned the capacity of the winning bidders. Is this fair?
Atedo Peterside: Some are disappointed that the likes of Siemens or Alstom did not bid directly. Siemens is in fact here, but as the technical partner in a consortium that won the bid for the Eko disco. I believe that is a better deal for them. Think where Siemens is coming from. Years ago, it was involved in a big scandal, [over bribes to politicians]. Everything was opaque then under an obnoxious military regime. That business model has been shoved aside, and they have teamed up with private investors who need technical expertise and are prepared to pay for it. That’s the right approach.
Financial Times: But there have also been questions about some of the Nigerian investors, including tycoons and former military chiefs.
Atedo Peterside: People write about murky deals. But they can’t name one that’s dirty. We must be careful. The rules were 72 pages long. There was nothing saying that a former military leader cannot be a shareholder in an investing company. Even if you think that a former military leader may have stolen some money in the past, then the onus is on you to prove that, find them guilty and put them in jail. But you can’t start claiming that any money they have can’t be used for investment decades later.
Financial Times: How long will it take to see the positive effects of power privatisation?
Atedo Peterside: For the distribution companies I believe it will be almost instant. It comes down to a better alignment of goals. If you have a fault in your house at 2am and you call PHCN [Power Holding Company of Nigeria] you will be lucky if they show up at 10 in the morning to repair the fault. If you call a private company, they know that they only make money if your meter is running. So they might show up at 2.05am.
Financial Times: How is the overall power supply going to increase?
Atedo Peterside: First, you will have efficiency gains in both the existing gencos and discos. Many of the gencos are producing a lot less power than they should be. Take the Sapele plant in the hands of PHCN; it was virtually moribund. Ughelli was producing about 100MW. The winning bidders at Sapele and Ughelli plan to ramp up to 1,000MW. You also have new IPPs coming on stream.
Financial Times: What will be the effect of the power sector reforms, if successful?
Atedo Peterside: The effects will be huge. If you have GDP that’s been growing at 7 per cent already, imagine what that would be if you had reliable power? Reform becomes a lot easier when you create new winners who have a vested interest in making things work.