Stop saying that we ‘privatised’ power - we did no such thing

Over the weekend, I watched an investigative documentary on the fall of Kenya Airways from being one of the most profitable companies in East Africa to becoming a basket case in need of a taxpayer bailout. The documentary, produced by Kenya’s finest investigative journalist John Allan Namu focused on the questionable decisions made at board level while executing the ill-fated “Project Mawingu.”

Project Mawingu was essentially a brainwave hatched by the management of Kenya Airways in 2010 which had the goal of more than tripling its fleet size and operations to over 100 aircraft flying to 77 destinations. Using little more than optimistic business projections and green candle graphs promising growth and strong cashflows, the airline embarked on a foolhardy campaign of borrowing to fund unsustainable expansion and questionable financing mechanisms.

Among other things, a deal to buy 10 Embraer E-190 narrow body jets was routed through a company with untraceable ownership registered in the Cayman Islands which obtained the bank loan, bought the aircraft and leased them to the airline. Under the leasing agreement, the airline had to pay off the bank debt and then pay this murky company to lease its aircraft, a move which reportedly added more than $400,000 to the cost of each aircraft. Unsurprisingly, within a year, the airline began bleeding copious amount of cash, breaking its own record for the heaviest financial year losses in Kenyan history in 2015 and 2016.

Now, with the added impact of the COVID- 19 pandemic and associated reduced flight volumes, KQ will shortly be taken over by the Kenyan government, and its losses will be charged to the Kenyan taxpayer. Expectedly, to many within Africa’s multitude of statist-socialistcommunist types, this is great news. Not only does a symbol of “national pride” come back under public control after being privatised in 1996, but it also offers a handy propaganda victory - “Private ownership does not mean better run!”

There is of course, one very glaring problem with this narrative.

Corporatisation is not privatisation

According to the dictionary definitions, privatisation is the transfer of publicly owned entities into private hands, while corporatisation is the reorganisation of public entities into corporations so as to improve efficiency by mimicking private business structures. Technically under this definition, the government liabilities we sometimes proclaim as “privatised” on this continent are indeed privately owned. Kenya Airways for example, had 51 percent of its shares on public offer, with the Kenyan government and KLM splitting the remaining 49 percent in a 26:23 ratio.

Something similar happened with the “sale” of the newly created power distribution companies in 2014. While the new investors got 60 percent of the company shares, the federal government retained 40 percent shareholding in every DISCO it “sold.” Technically this is privatisation, but in actual fact it could more accurately be described as mere corporatisation with increased private participation. The Nigerian government corporatised the structure of the Power Holding Company of Nigeria (PHCN) and broke it up into Generation Companies (GenCos), Distribution Companies (DisCos) and Transmission Companies (Transcos). It then parcelled out a 60 percent ownership share in each one to private investors and took their money “for vanishing,” so to speak.

In fact, with the exception of the 60 percent private shareholding in the DISCOS, the entirety of Nigeria’s power sector remains firmly and overwhelmingly in the hands of the government. The generation and transmission of power is not controlled by the private sector. The pricing of the distributed product which should be the purview of the DISCOS is directly set by the Nigeria Electricity Regulatory Commission (NERC). The entire purpose of inviting private capital into the DISCO space was to perform the motions of privatisation without actually doing it.

Performance- privatisation is the new trick

Make no mistake about it - the ideological war for Nigeria’s economic soul which started in the 1970s - state control vs private enterprise - is still very much yet to be decided. The same characters from 4 decades ago are still knocking about and doing everything in their power to frustrate any efforts to privatise public liabilities and open up Nigeria’s economy to actual capitalism. One of the tenets of the ideology that still fights this war is that “privatisation does not work.”

Setting up power sector privatisation to fail by corporatising aspects of the power value chain while maintaining full control over the entire sector is a way to ensure that the inevitable failure and collapse of the DISCOS will be blamed on the convenient capitalist bogeyman of “corrupt businessmen” and “unpatriotic profiteers”.

When African governments decide to do privatisation correctly, the results are always positive, and spectacularly so. When they however use the Kenya Airways and PHCN DISCO model to entrench their presence while supposedly making the company “private,” the results are always unmistakable. I am writing this so that when - inevitably - the distribution companies finally run out of debt- financed runway and collapse, leading to a fresh round of nationalised assets, it will be on record that some of us know exactly what game is being played here.

It is not as if these old men have learned any new tricks in 40 odd years.

Setting up power sector privatisation to fail by corporatising aspects of the power value chain while maintaining full control over the entire sector is a way to ensure that the inevitable failure and collapse of the DISCOS will be blamed on the convenient capitalist bogeyman of corrupt businessmen and unpatriotic profiteers