* Nigerian political 'godfathers' behind several bids
* Foreign aid agencies legitimise shady process
* Power shortages the biggest brake on economic growth
* Process could still succeed with competent partners
By Joe Brock
ABUJA, Oct 21 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 privatised 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
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 labour 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 privatisation 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 privatisation 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,"
Ni g erian 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
Sorting out this mess would seal President Goodluck
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 privatised 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 privatisation 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
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, one of the most powerful 'godfathers', 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 and undisputed
godfather of Nigeria's commercial hub, 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 privatisation 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 privatised offspring can only bring more pain."
U.S. and British aid agencies are overseeing this process.
Britain's Department for International Development (DFID)
pays 200,000 pounds ($322,800) a year for some embedded
consultants who also have strong political ties, a source who
has worked on one of the power projects they fund said.
A DFID spokesman told Reuters they had helped to make the
privatisation "as transparent as possible". DFID has spent 21
million pounds since 2007 on the power sector. Since then,
generation has risen by roughly 1,000 megawatts, according to
Nigerian government data. Yet tens of thousands are needed.
"An independent review ... concluded that a substantial part
of the increase in power supply would not have occurred without
... these expert advisers," the DFID spokesman said.
No new minister was appointed after Nnaji resigned on Aug.
28 over allegations he was involved in Geometric, one of the
firms bidding. DFID openly funded Nnaji's office throughout,
even though it was public knowledge that he has a stake in
"The irony for donors is that they stand accused of helping
to fuel the very practices they aim to combat .... lending
credibility to a process they should have known to (be) lacking
in transparency," said Antony Goldman, head of PM consulting.
Nnaji was seen as a technically competent minister, but a
power ministry source says he did not get on with Vice President
Namadi Sambo, the man with the most influence over the sector.
Sambo is head of the National Council on Privatisation
(NCP), which has the final say on which firms make it through
the bidding process. He also manages the National Independent
Power Projects, a state-run scheme to build ten power plants set
up eight years ago that has swallowed up $20 billion of
government funds but left only four plants producing power.
Sahelian Power, the sole approved bidder for a distribution
firm serving northern Nigeria's main city of Kano, has close
ties with Sambo, a northerner, a power ministry official said.
He also noted that the only distribution company judged by
the body Sambo chairs to have had no technically qualified
bidders was in Sambo's own home state.
Sambo did not respond to a request for comment. He has
publicly said does not own any firms bidding.
Many Nigerians say there is still grounds for optimism.
A senior power sector official said it was "inevitable" that
those with political backing would be behind the bids. "That's
just Nigeria," he said, but he added: "If they are supported by
technically capable companies then does it really matter?"
It may not matter in the case of, say, Abubakar . The retired
general is no power expert but Integrated Energy has partnered
up with the Philippines' largest power retailer Manila Electric
on a series of bids for state assets.
If all bids can find competent foreign partners like this,
the process could yet get the lights to work, analysts say.
These men with big bucks may also have been the only people
willing to take on the financial risk at this stage, starting
with a minimum bid bond of $2 million, said Kayode Akindele,
partner at Lagos-based financial adviser 46 Parallels.
Besides, in Nigeria, where nothing happens without the
oligarchs, getting them involved may be the easiest option.
"It helps to have powerful interests part of the process,"
Akindele said. "Rather than outside, working against it."