Nigeria's power industry reform needs more scrutiny

Nigeria's privatization plans for its power grid don't consider the role of the generator and diesel fuel industries, which may have an interest in holding up improvements.

The glaring omission of generator makers and importers of diesel into Nigeria seems to me to be a lack of real politique on the part of analysts of Nigerian politics.

If there are 18 local and foreign companies vying for a share in a privatized Nigerian power sector, it should not be ignored that all the companies involved in generator-making are necessarily foreign companies: Perkins, Volvo, Honda, Deere (I believe), among others. As I said in a previous blogpost, the Nigerian power industry already has private interests vested in it. It is estimated that Nigerians spend U.S. $13 billion a year to fuel generators, which is good business on the part of generator-makers and importers of diesel. As is all too often the case when writing about Nigeria, hard data is hard to come by on who exactly does big business and in what sector, but it will be very curious to me if a lot of moneyed, government-related Nigerians are not already investors in the generator industry, not to mention questions of trade and foreign direct investment from countries these generator companies come from. More urgently, if Nigeria does pull off a better power grid and improved power industry, it could affect the importation of diesel and generators into Nigeria, and thus could impact trade relations.

Also of concern is the government's ability to uphold rules to make sure that its interests align with that of these companies investing in the industry. Nigerian lawmakers do not have a good track record in showing resolve in their dealings with foreign companies. Take gas flaring, for example. There have been promises by many companies to stop gas flaring in the Niger-Delta most recently one from Shell in 2010. Still, a Federal High Court ruling in Benin in November 14, 2005 ordered the company to stop, that gas flaring was a "gross violation" of constitutionally guaranteed rights. What hope does one have that the most recent promise from Shell will be upheld without government pressure if they have been flouting court rulings for at least 5 years without penalty? All this is to say that there have been no systemic changes, in the oil industry or anywhere else, in how business with large companies has been conducted. Mind you, the new power industry will be full of them. One cannot but worry when one sees more foreign interests coming into the Nigerian industry and the government has no ways in which to tweak the incentives so that the interests of the market and the consumer are not at such cross-purposes.

More worrying than political analysts ignoring the reality of the industry is the fact that there has been no indication by President Goodluck Jonathan that he has taken this reality of the Nigerian energy market into consideration. Nobody feels sorry for generator-makers -- I certainly do not -- but it is hard to take seriously a new privatization scheme in a key industry that does not acknowledge the trade relationships that it will affect.

-- Saratu Abiola blogs on Method to the Madness here.