BILLIONS OF DOLLARS SPENT ON ELECTRICITY WAS EITHER STOLEN OR MISSPENT, FORMER NERC BOSS REVEALS
A former Chairman and Chief Executive Officer, Nigerian Electricity Regulatory Commission and law lecturer, Dr Sam Amadi, shares with TUNDE AJAJA his thoughts on the electricity problem and the Nigerian legal system
You were once the chairman of the Nigerian Electricity Regulatory Commission, the topmost regulatory body in the power sector. From your vantage point, why is it almost impossible for Nigeria to have stable power supply?
This is a billion-dollar question, but I will give a short answer to a difficult question. I think the power sector reform failed for two reasons: bad modelling and poor project management. We adopted a wrong model suggested by neoliberalism, which is quick privatisation. Yes, commercialisation and liberalisation are good policies but government should have been reluctant to privatise at the rate it did without ensuring adequate corporate governance and regulatory stability. Again, the neoliberal model oversold the ability of the private sector to rescue the sector. There was unjustified confidence that once you privatise, the private sector will change the game because it has the ability to cure two neoliberal economists identified with public enterprises: principal-agent problem and soft budget line. This was an unreasonable faith. Principal-agent problem and soft budget line are not solved by mere change of ownership. Governance and regulatory rules are the drivers of efficiency, not private ownership of asset. So, we hastily and unreasonably privatised and we are still financing funding gaps in a new bankrupt electricity market. It is my view and I expressed it strongly while in office that we privatised too early but I incurred attacks from ministers and the Bureau of Public Enterprises. We should have corporatised and commercialised the sector and shown discipline with public procurement and corporate governance. Now we would have a fairly strong electricity market to begin to gradually privatise. The most important issue is creating a competitive market, not necessarily a private electricity market. Privatisation did not deliver the promised financing and we are still running in a circle. Again, we failed in project management such that Nigerian National Integrated Power Project has not delivered fully its first phase (2005-2010), that is 10 years behind. That is a huge project management gap.
Given the identified flaws in the privatisation process, you were one of those who oversaw the exercise when you were in NERC.
Yes, I was somehow involved in the sale of assets because NERC played a leading role in providing regulatory framework that the industry needed to attract those investors. But we had no direct decision-making mandate on privatisation. It belongs to BPE, the National Council on Privatisation and the minister who represents the president on policy. We are a regulatory agency. Whether you privatise or not, the regulator plays fairly the same role. Of course, I feel bad about something I did not do well. You always get wiser after the fact.
What do you feel bad about?
Maybe I should have shouted louder, fought harder and broken some heads so Nigerians would know I opposed or thought some processes were bad. Don’t forget that by 2010 when I was appointed, privatisation was already a well established policy of government. I had practical training in public service for about six years as an advisor to both the Senate President and the Minister of Foreign Affairs before becoming the NERC Chairman. So I know the limitation of every office; focus on your mandate, for the rest you can give advice.
Billions of dollars have been spent by successive governments on that sector, why is it that those monies have yet to translate to stable electricity or was the money misappropriated?
The reason is partly what I said before. The system was not reformed even as we tried to privatise. A lot has been spent. One can argue that there is a high amount of waste and corruption in the sector like other Nigerian sectors, but I think, additionally, we have also made some wrong investments, especially funds spent on consultancies for privatisation. We also did not do prudent investment in transmission. As the Chairman of NERC, I recall one meeting with the President and other members of Presidential Action Committee on Power where the Minister of Power requested for about N5bn to fix some problems in a power plant. I objected that such funds ought not to be approved and spent without regulatory approval because in a regulated industry all spendings on network have to go through prudence and relevant check by the regulator. You can’t spend one kobo in a regulated industry without regulatory approval because every kobo ought to be recovered from tariff or discounted by the regulator. This controls corruption. The President seemed to agree but when the meeting ended, the approval was given for unreviewed expenditure. So many of the billions were basically misspent or wasted or even stolen. I can’t guarantee the integrity of what the state refused to place under regulatory control.
You once said the privatisation agreement was due for review, but some persons privy to it said the conditions for review or cancellation are tilted against the government and it’s in favour of the private sector players. Aren’t we at a crossroads?
That is the problem with privatisation. You don’t privatise if your assets are doing fine. If investors already know you want to dispose of what is not working, they will price it low. The pressure is on you to sell. They will extract from you agreements that are favourable to them to cover what economists call ‘incomplete contract’. They will insulate themselves from all political and social risks and you have to agree to get any buyer. That was what happened. In addition, many of those who bought those assets don’t have the technical and financial capacity to really manage and change such collapsed infrastructure. No. they don’t. Also, they have not got the best policy and regulatory environment. So they failed because of internal and external weaknesses.
You once said it was later discovered that the BPE amended the Terms of Reference to reduce the financial and technical capabilities, which has now put Nigeria in the current mess. Isn’t it surprising that no one has been punished or held accountable for dereliction of duty?
No one should be punished because they did not commit any crime. They simply exercised their discretion to achieve an outcome mandated by the government. Government said its priority was to sell off the assets. The asset manager goes round the world and there is little appetite for the assets. He reckons that he may not sell if he does not lower the financial threshold or change the terms of the request for proposals. He does that because that is the only way to attract the bids. The point I was making was that NERC used the previous terms of reference and evaluated the bidders but they could not meet the financial and technical threshold. No one asked me to do that; I sensed that since I didn’t control privatisation I could control the technical and financial capability of the network manager. So we decided to have a regulation called ‘Regulation for the establishment of Fit and Proper to Manage the Network’. While BPE was preparing to announce winners we worked silently. When the result came out, I was shocked. Only one or two firms were competent. I wrote to the Vice-President who was the chairman of NCP and had responsibility to regulate privatisation. He was alarmed and quickly set up a committee comprising the Permanent Secretary, Minister of Power, who was chairman, NERC, BPE and the transaction advisers as members. We met and reviewed NERC allegation of lack of competence. At the meeting, BPE brought an amended Terms of Reference which allowed companies to use the balance sheet of partner abroad to shore up their asset worthy in order to meet up the $100m threshold. Also, instead of requiring real agreement that commit those partners to financial and technical investment in the sector, the terms of reference allowed mere memorandum of understanding. Basically, the new rules made it easier for bidders to emerge. If you stick to the old rules, many firms, including the ones promoted by the Minister of Power, would not meet the requirement and there would probably be no sale. So, to close the deal, we reduced the price, so to say. This is not a crime but a policy mistake in my view.
The private sector-driven discos and gencos could have performed below expectation, but transmission that is run by the government has not done better because our transmission capacity is still poor, leading to the stranded power we have. Why is that, despite the billions spent?
Poor performance in the electricity sector is not limited to private or public enterprises. It is a structural problem that requires consistent and comprehensive reform of the entire industry and even the entire public sector. If you follow my argument, you will realise that the entire sector is not efficient. The reason for stranded power is mismatch in the system. Transmission is a bottleneck because the right kind of investment and managerial know-how has not been allowed for a reasonable period of time. There is a time lag before even the most serious management handles the sector. It will take time to make the Transmission Company of Nigeria efficient. Also, we need to have prudent, smart, and adequate financing of TCN. It also requires a good policy and regulatory environment that promotes private sector investment. Also, sometimes, disco network is weak, very weak such that they cannot take power if it is dropped at some point. The problem has technical and financial drivers. While at the NERC, we tried to solve it through a task force and we got recommendations to change the financial incentives in the system, revise the regulatory burdens and match responsibility to competences. Our tenure was up by the time the report came out. I’m sure the NERC is still working hard on the solution, but it will likely persist for some time.
Nigerians and the operators are torn between tariff hike and cost-reflective tariff, especially when supply in most places is still poor. How do we find a middle ground?
The middle point is the point in which the tariff is affordable and would help to improve power supply. Tariff making is a serious and controversial issue because it requires difficult balancing between the interests of consumers and producers. I think tariff is being misrepresented as the main problem of the sector. Perhaps it is not. Cost reflective tariff is an important cornerstone of the market. If we don’t have good tariff structure then investment will dry up in the sector. But the regulator has to ensure that there is no rate shock, so he can ask the producer to stagger recovery so that tariff increase is not steep. The most important thing is that discos have assurance that they will recover deferred payments in another payment circle. This all depends on a credible regulatory environment.
Is the increment justified at this time?
Yes, considering the huge financial deficit and the rising cost of producing power. But the approach is bad. The regulator abandoned much of the communication to the government and that created significant political risks. I hated the fact that the legislature and executive seem to hijack the process and weakened the credibility of the industry.
Do you foresee a day in Nigeria that we would have uninterrupted power supply?
Yes we can get there. It all depends on how hard and smart we work. We need to rethink the fundamentals of the reform, abandon some of the wrong policies and move on with the right ones. Reform is iterative and incremental. It is also comprehensive.
When you left NERC, what informed your preference for teaching and not legal practice since you have a PhD in Law?
When I left NERC, I didn’t want to be caught in the revolving chair syndrome where those who leave regulatory jobs go back to work for the industry. Till date, I have not earned one kobo working for anybody in the power sector; I didn’t do any contract through any front or collect any bribe from any contractor. I told myself it was time to give back to the academia. I received generous scholarships from Harvard for three graduate degrees, so I need to give back. I started legal practice with Gani Fawehinmi and worked with Olisa Agbakoba. I starred against the best SANs and I had some reputation of being a good attorney. I have returned to legal practice in addition to the academia and my law firm, Logosphere Attorneys, is focused only on public interest litigation.
In your tweet few days ago, you queried why 72 lawyers were awarded the SAN title and you said 2020 is ‘a year that has been marked by lack of excellence in legal practice, whether academic or litigation’, could you expatiate on your reservations?
I believe the number was too much and there is nothing that tells me there has been increased excellence in the legal profession for the past six years which is basically the focus for those who apply based on litigation. I believe that some, relatively few, in that category deserve their award because of the distinction they have attained in the legal profession as academics or litigators. But the truth is that the number of such persons is so small that it would not in my consideration come anyway close to 72. Yes, COVID-19 affected the practice of law as well as other professional practices in 2020, but that was not the basis of my tweet.
There have always been divided opinions on the award of the SAN title. Some believe it’s good and some oppose it partly because they feel it could create some feelings of superiority amid allegations that the process has been politicised. What’s your view?
There are two ways to look at the issue. First, there could be strong argument that the award of such a title with the attendant privileges and benefits could amount to some significant anti-competition pressures on the law practice. It makes the practice of law non-egalitarian in the sense that the award exaggerates the relationship between competence and honour. Many litigators will prefer a SAN for the simple reason that their case will move faster and in Nigeria’s corrupt environment, a SAN has a higher status to fix things for them. So this distorts the free market of legal services. This may be the reason why such a republic like the United States has no such honours. The market separates the men from the boys. Consumers decide who has the honour and who should be patronised. But, the United Kingdom, halting uneasily between a republic and a monarchy, keeps such feudal heritages and relics. You can see where our romance lies. But from another perspective, the award of SAN can be a motivator for excellence and may even serve some public value of helping to recognise true achievement if the criteria are more reflective of quality of work. I think the procedure lends itself to gaming and lobbying. The privileges committee is constituted in a manner that it is unwieldy. A better privileges committee should be constituted closer to the Nobel Committee such that they focus on quality and not on number and sponsorship by bureaucrats. I think the most distressing thing is that the usual Nigerian culture of mediocrity, favouritism and plain corruption has weakened the honour. Maybe the committee should consider changing its processes.
What would you propose?
Instead of people applying for it, let the committee request nomination from reputable lawyers, law academics and distinguished judges. Let’s make it a really meritorious award, not based on number of cases or books but on quality of legal contributions.
The legal profession has been bedevilled by a complexity of issues that have worked together to make the judiciary defective in some ways. What are your greatest concerns about our judiciary?
I have three concerns about the legal profession. First is the intellectual quality of the profession. I’m a law teacher, so let me start from there. I just got a copy of Prof Ben Nwabueze’s ‘Presidentialism in Commonwealth Africa’ for a research I’m doing on a book project. I wonder the copious knowledge of jurisprudence, philosophy and social science exhibited in that book. Of course, Nwabueze is exceptional, and the quality of books by previous legal academics is very high. What we see now are hopelessly poor books, largely self-published by Nigerian academics. In some courses like jurisprudence and social justice – perspective courses, you can’t find a really good Nigerian book. So, as far as I’m concerned, I will score legal scholarship in Nigeria a terrible grade. It does not even exist in the real sense.
What are your other concerns?
Let us consider litigation. I read decisions from some of our higher courts and I can say with some fear and trembling that the quality of legal reasoning from the bench is mostly pedestrian. I will like to see again the days of former Justices (Chukwudifu) Oputa, (Kayode) Eso and the rest. They elevated the art of judicial reasoning such that a decision of the Supreme Court of Nigeria on constitutional matter, for example, would read like a philosophical treatise on democracy. Of course, there are a few great minds on the bench in the Supreme Court as well, doing great and maintaining that erudition we knew the court with. But I’m speaking of the average or the general. So, the intellectual quality of legal practice generally is very poor. I can speak about academic and litigation side. I cannot speak about corporate practice because I have never been a corporate lawyer in that sense. The second worry for me is the matter of judicial corruption. When I started my practice with Gani Fawehinmi, we heard about judicial corruption as a rumour. But now it is the staple. The credibility of decision-making by courts and tribunal is not that high. This is a disincentive to economic growth because of the destabilising effect of a corrupt judiciary on investment. The third concern is the failure of the Nigerian Bar Association in the recent past to be a true leader in the struggle for a free, just and prosperous Nigeria like in the golden years. Law has become a very conservative and even decadent force of regime protection and status quo preservation in Nigeria today.
Corruption on the bench is at the very least a catastrophic development for any society, how real or disturbing is this to you?
Corruption on the bench is the most disturbing. If there is corruption in the legislature, wrong laws will be made, and the wrong persons will be given opportunity for personal enrichment at the expense of the public. If there is corruption in the executive, financial allocation will go to the underserving and some citizens will remain poor while a few connected or audacious citizens will become billionaires as it happens in Nigeria today. But corruption in the judiciary basically leads to loss of lives and liberty. It means that the wrong person can be imprisoned and executed for what they never did. The judiciary is the most sacred place in the whole universe. It is one place that corruption should fear to enter. But it is one place many Nigerians believe corruption fully resides. I think we are witnessing the collapse of legal formalism; the notion that judges are special persons who are not affected by the social dialectics and dynamics of their society. No, judges are like the rest of us and we have to develop strong regulatory rules and processes to constrain judges from being corrupt and even roguish like the police, the legislator, or any other public officer. We should no longer assume that judges are saints. They are humans and we ought to keep an eye on what they are doing in the name of legal justice.