Wednesday , 1 April 2020
Home > Guest Column > 10 reasons why energy privatisation is doomed to failure
Fashola: A lot of excuses, little electricity

10 reasons why energy privatisation is doomed to failure

As Nigeria struggles with epileptic power supply and power minister Babatunde Fashola flounders like a drowning man, looking for excuses for his failure to improve the situation that he inherited, the Executive Director, Research and Advocacy at the Association of Nigerian Electricity Distributors, Sunday Oduntan, has suggested that all those involved in this failure should banned from using generators.

Many Nigerians believed that power privatisation, that was finalised under former president Goodluck Jonathan over two years ago, would be the silver bullet to solve the country’s chronic electricity supply problems. This belief ignored evidence from the failed energy privatisation experiment in the UK, where it has been a story of skyrocketing bills for consumers and little investment by suppliers.

Fashola should have known better. He could have scrapped the dodgy privatisation contracts he inherited from the previous administration.  But he chose to honour them because he is a firm believer in “free market” orthodoxy, even though all evidence available points at failure of the market in a natural monopoly like electricity.

The minister would do well to read this report from Global Justice Now. It was published in March 2015.

Energy privatisation

One in five people live without electricity because they are unable to access it. Millions more go without electricity because they cannot afford to pay for it. Even in the UK, people are being forced to choose between feeding their families and paying their energy bills.

Monopoly light bulbWhere people cannot access electricity at all, they are exposed to pollution from other fuels used for lighting and cooking. Access to modern communications is impossible and hours are spent, often by women and girls, on fuel collection. It is clear that we need new ways of meeting our energy needs without destroying the planet.

During the last two decades, rich country governments and institutions like the World Bank have pushed energy privatisation as a solution. But studies by the same World Bank and others have concluded that there is no evidence that private energy systems are more efficient than public ones, and time and again these projects have failed to meet people’s energy needs.

UK aid funds energy privatisation in Nigeria

Despite the UK’s long and unsuccessful experience with energy privatisation, the Nigerian government is supported by aid from the British government. The UK continues to pour public money into a privatisation programme that seems doomed to failure, neglecting policy options that could address Nigeria’s serious energy supply problems.

10 reasons why energy privatisation fails

1. Higher energy bills

In Uganda, Ghana, Nicaragua and other countries corporations have increased electricity bills after taking control of public systems – often making electricity unaffordable for those on lower wages and reducing access. In Nigeria, the government has attempted to raise prices ahead of privatisation in order to show investors there are profits to be made. In the UK, energy prices have risen eight times faster than average earnings since 2010 while the Big Six energy companies have pocketed record profits.

2. Disconnections

Private energy companies often impose pre-payment meters on households. Then, if a family cannot afford to pay for their electricity, they are automatically disconnected. This has happened from Uganda to the UK. A study by the World Bank’s privatisation agency found evidence of fewer households being connected to electricity supplies where privatisation has taken place.

3. Failure to extend the grid

Private companies prefer to serve middle class populations and industrial consumers where power lines already exist and where they can guarantee their profits, rather than expanding into slums where poorer people live. A study by the World Bank found that private companies had contributed only 11 per cent of investment in electricity infrastructure in sub-Saharan Africa, and that most of this has been for power stations to generate electricity, rather than extending the grid into poorer areas.

4. Profits are not reinvested

Corporations are free to transfer their profits out of communities and into the pockets of distant shareholders and corporate executives, instead of reinvesting money into the energy system. Tax breaks are often used as incentives to private companies: in Tanzania a five-year tax ‘holiday’ was granted while in the UK Big Six energy company Npower managed to avoid paying any corporation tax between 2009 and 2011.

5. Corruption breeds, accountability diminishes

Privatisation contracts can be linked to poor transparency and weak accountability. In Nigeria, the adviser of President Goodluck Jonathan who is overseeing privatisation, has a commercial interest in one of the companies which will be selling electricity to the grid. Transparency International has rated the privatised Ugandan energy company one of the most corrupt institutions in Uganda.

6. Government and taxpayers take the risk

Privatisation places the risk with government and taxpayers while companies cream off the profit. In many cases, private power generating companies have set up contracts with the public electricity supplier to purchase the power they generate at a guaranteed price that ensures them a profit. This often leads to the government having to pay higher prices for the electricity than they can charge power users, creating debt. In Nigeria, the government has had to use tax revenues to guarantee contracts with the companies generating the power.

7. Private financing costs more

Unlike public financing, loans to companies have higher interest rates. These higher rates are passed on to users who then have to pay more for repairs, upgrades and other maintenance. The privatised Kenya power company was brought back into majority public ownership after it had trouble raising enough finance.

8. Jobs are lost

Energy privatisation is associated with job losses and poorer conditions for staff. In the Philippines, unions recently won back-pay or reinstatement for 5,000 workers who were illegally dismissed when the national energy company was privatised.

9. Unable to deliver renewable energy

Private companies and electricity markets have failed to invest in renewables on the scale required. Where large-scale renewables exist it is as a result of public investment. In Germany, cities are taking their electricity systems back into public ownership because of the failure of private suppliers to make the transition to green energy.

10. Governments have to step in to rescue failing private providers

In a number of countries, energy companies have been renationalised after privatisation failed. For example, the Dominican Republic renationalised its electricity distribution companies five years after privatisation following protests over high prices. In Brazil, the regulator had to take over privately owned distribution companies when the power supply in five states was threatened by the danger of the owner going bankrupt.

Global Justice Now is a democratic social justice organisation working as part of a global movement to challenge the powerful and create a more just and equal world. They mobilise people in the UK for change, and act in solidarity with those fighting injustice, particularly in the global south.

 

Download PDF

Check Also

Nigerian doctors go on strike as coronavirus cases rise

20 March 2020 Nigeria successfully managed an Ebola outbreak, but COVID-19 is a very different …