Open Letter To Nigeria's President Goodluck Jonathan (Gej)  - Solution To Nigeria's Electric Power Problem And How The Nigerian Government Can Support Small Businesses

By

Bunmi Awoyemi, Ph.D.

awoyemi@gmail.com

AUGUST 3, 2010

I have some ideas as to what you could do to fast track investments in the power sector. We need to borrow a leaf from the Americans. In the 70s, America did an audit of its power infrastructure in relation to its anticipated population growth and came to the conclusion that if something drastic was not done about ensuring heavy and radical investments in the power sector, the United States would have rolling black outs down the road. They analyzed their problems and came up with a plan.

The planned worked for them and I don't see why we should not borrow it here and implement.

GEJ: 1. What they did was to open up the power sector to private sector investment without any restrictions as to how much power you can generate and how you can distribute it. The current requirement in NIGERIA that private sector and state governments must surrender the power they generate to the national grid if it exceeds 100 MW MUST be abolished. It is the number 1 obstacle to investors readiness to come in boldly to invest. Your administration must by Executive order abolish this - the order must state as follows:

"individuals, private companies, Housing Estate Developers and Residents, Cooperatives, private and public consortia, state governments and local governments can generate any amount of MW of electricity that they wish. They also do not have to surrender the power they generate to the national grid. Every state government can generate the power that its state will need and pass any excess power to the National grid if it so desires." 

An amendment should be proposed by the Presidency to the Electric Power Sector Reform Act 2005 which states that a single company cannot own and control the generation, transmission and distribution for the same power project. This is wrong. The only way an investor can be confident enough to invest is if it can have some level of control over how the power it has generated gets to the final consumer. Even if a power purchase agreement is signed it may not yield the desired results because a lot of communities across the country tap electricity for free from transmission lines and PHCN does not have the logistical capabilities, vision and integrity to plug those leakages. What it means is that the PHCN may sign a POWER PURCHASE AGREEMENT but may not be able to pay for the electricity it is purchasing from the company. After all, PHCN will have to use the funds it gets from the end consumers to pay the company that it is purchasing the power from. The whole system is bound to collapse eventually if the companies generating the electricity are not allowed to control the transmission and the distribution channels. A government guarantee of such a scheme where PHCN still has full control of the power transmission lines would have a high rate of default and will not be sustainable. The exigencies of the times makes it necessary to sweep away these archaic provisions of the Electric Power Sector Reform Act 2005. You need to adopt a no 'holds barred' "gloves off" approach to end the hydra headed monster called power failure in Nigeria.

2. The US government gave SOVEREIGN GUARANTEES/IRREVOCABLE STANDING PAYMENT ORDERS (ISPO) to companies who expressed their readiness to invest. Not 1 cent of the US government's treasury funds came into the hundreds of power projects that sprung up from this deliberate policy. All the UNITED STATES government did was to guarantee the debt finance or loans that these power companies got from both UNITED STATES banks and foreign banks. Because of this, policy the banks were bullish about lending to the owners and sponsors of these projects. In order to protect itself the US government ensured that the companies that received the benefits of these guarantees were capable of carrying out and implementing the projects.
GEJ: You should do the same thing. Just copy the AMERICAN MODEL that worked perfectly well for AMERICA.

3. I am part of a consortium of EUROPEAN Companies that has in its possession 3, 000 MW GAS TURBINES. It still has it in its possession as a result of the failure of the original consignee to take the consignment in EUROPE as a result of the bankruptcy of that company. Typically turbines take 1 to 2 years to fabricate. Fortunately these turbines are in storage and on ground in EUROPE and are brand new. With your full support we can bring these turbines and deploy them in AKWA IBOM STATE (because of its high level of gas infrastructure) and get them up and running within maximum of 9 months.

If we can get expression of interest from you directly and your full weight and support behind the project I can assure you that we will implement it 100% without a dime of Federal Government money. What we will need is the Sovereign Guaranty of the Nigerian Federal Government and a POWER PURCHASE AGREEMENT that takes all the things I discussed above into consideration. We will raise the funds 100% and execute the project within 9 months and add the power to the NATIONAL GRID for the enjoyment of Nigerians.


 

SUPPORT FOR SMALL BUSINESSES

@GEJ: Ensure that the N500 Billion you said has been set aside to stimulate the economy gets to the small eatery operator, the businesses center/cyber cafe operator and other similar small businesses. It should not go to only big companies. Kindly study the model of the US SMALL BUSINESS ADMINISTRATION - http://www.sba.gov/  I know we have SMEDAN –  http://www.smedan.gov.ng  but it has not been an effective organization compared to the US SMALL BUSINESS ADMINISTRATION. From the next link you will see the various units that they have and what they do, are doing and have been doing over the years - http://www.sba.gov/aboutsba/sbaprograms/index.html

GEJ - U need to recreate SMEDAN and copy the US Model in order to ensure that the funds that are meant to get to small businessess actually get to them. A situation where $500m that was set aside by the CBN for small businesses by the last administration is 100% released to a single big business is scandalous. This was made possible by virtue of a waiver that was granted at the time to the Banks by CBN. Small businesses are the greatest employers of labor and the biggest tax payers as evidenced by the Success of the LAGOS STATE GOVT's PAYGO TAX Program. This fact is also known globally. It is also the best way to support fresh graduates who may not be able to secure employment immediately after their NYSC. Many of them have ideas for small but effective businesses. We need to accept the fact that the biggest employers of labor are small businesses and do all we can to support their emergence and growth.

The 7(a) Loan Program is SBA’s primary program for helping start-up and existing small businesses, with financing guaranteed for a variety of general business purposes. SBA does not make loans itself, but rather guarantees loans made by participating lending institutions. In this way, taxpayer funds are only used in the event of borrower default. This reduces the risk to the lender but not to the borrower, who remains obligated for the full debt, even in the event of default.

http://www.sba.gov/financialassistance/prospectivelenders/7a/index.html

I will urge your administration to put in place a loan program like this one for unemployed graduates to enable them to access loans. Your administration will source for the funds from the Banks and guarantee repayment. The banks will be the source of the funds not the government. U can weave this into the N500 billion program that u just announced. To qualify for it the graduates would submit a businesses proposal and the proposal should be reviewed by a Unit set up in each branch of every bank to handle such applications. You can put a cap of N1m per borrower on the loans to be given and give them a 5 year repayment term @ 7% interest rate , with zero prepayment penalty for those that want to pay back early. The scheme can allow a past borrower who pays up the loan in less than 3 years to access additional loan of N5m on the same repayment terms. I would urge you to take a serious and hard look at this proposal and let it form part of your agenda for change in Nigeria!

BUNMI AWOYEMI  is an Oil & Gas and Energy Consultant.