A Failure of Change Management
It is now almost seven years since about US$3.0bn in private capital was invested into the Nigerian electricity sector, to acquire the disaggregated assets of the former government-owned utility. That seminal event was heralded at the time as the beginning of a new era in the country’s dysfunctional electricity supply industry. It now appears that we were all sadly mistaken. Less than a decade later, according to credible news sources, the Nigerian government appears to be considering a “review” of those asset sales, due to poor performance in improving power supply. Any wholesale reversals would be a sad mistake and a step in the wrong direction.
At the risk of appearing to say, “we told you so” — early in 2011 (long before the asset sales were ever consummated) I worked with senior colleagues at AFC to publish a white paper titled “Nigerian Power Distribution: The Commercial Imperative”. That document is still available on our website and is worth re-reading for the key principles that were laid out therein, as well as for its prescience in relation to how events have since unfolded. Sadly, several of the outcomes that we wished could be avoided have in fact emerged. In a nutshell, what has happened in the Nigerian electricity privatization is a failure of change management. This is particularly so in relation to the critical commercial coal-face of the energy sector, electricity distribution.
Firstly, it is always important to start with some context. Prior to the “big bang” sale of assets in 2013, there was very little practical experience or expertise in Nigeria of large, grid-based electricity supply systems running on the basis of sustainable economic principles. In practice, this meant that even under the best of circumstances, the immediate aftermath of privatization was going to be challenging. This simple reality was the (admittedly not terribly contentious) thesis of our paper in 2011. Reality has proven to be even more difficult than we could have ever imagined; what with currency devaluations, major global economic volatility, political change and weaknesses in regulatory governance over the period.
Secondly it is just as important to avoid the danger of a single story. Despite the incredible headwinds which faced the industry, there have been success stories worth noting. Whether it be in the area of reducing technical and commercial losses, or in expanding plant capacities and improving energy delivery; great progress is being made. In our many meetings with sponsors and management teams of previously government-owned assets over the years, it is not difficult to see the amount of enterprise, effort and dedication that is being invested into improving the financial and operational performance of these difficult properties. Private enterprise, expertise and capital (mostly home-grown) is being deployed in very difficult circumstances to solve Nigeria’s most important infrastructure challenge. It is worth pausing to appreciate this in itself as a milestone en route to the ultimate solution that we all care about: stable and sustainable energy supply. Of course, even the best efforts are not enough; results are what matter, and this brings us to the underlying failure of change management which I believe is responsible for the current state of affairs.
There is no value in pointing fingers as to the source of the problem. In any event, there is more than enough blame to go around. Whether or not it was realized, what Nigeria attempted in 2013 was its most ambitious change management initiative possibly since transition from military to civilian rule. The commercial framework of an entire (highly critical) industry with intimate grassroots touchpoints was upended overnight. New counterparties emerged, each with differing objectives, incentives and capacities. From a situation in which total dysfunction and opaqueness was taken for granted; all of a sudden, it (rightly) mattered very much whether or not energy consumed at multiple levels was being delivered, accurately measured, with bills calculated and paid on time. An entire back and middle-office infrastructure to cater for the commercial imperative has had to be designed and constructed from scratch. The fundamental basis of relationship between buyers and sellers of energy changed dramatically at every level: from grudging tolerance and resigned resentment, to an adversarial and often legally charged one. This has been an extremely complex change management project, and it is safe to say that it has failed to meet with the expectations of the most important stakeholder: the ordinary paying consumers.
If we accept the problem definition, we might now focus on what the options are for resolving it (and it is extremely resolvable). Borrowing from the principles outlined in our 2011 white paper (in which we shared experiences from a success story in Lesotho), I will make a few suggestions. The first thing is to bear in mind the most important stakeholder in this change management project. And that is the average, paying, voting customer. This customer perspective must be a critical design principle for every step contemplated. Without a genuine understanding of customer requirements (and widespread buy-in for major changes), very little real progress can be made. That is why “Communication Strategy” was the first principle we highlighted in 2011 and it remains valid today. For change to be bought into and effective, key commercial stakeholders across the value chain (and on both the public and private sides of the industry) need to be signing from the same hymn sheet at all times. To put it mildly, this has sadly not been the case to date.
Next, as was pointed out in 2011, there are still no substitutes for industrial expertise, both in key regulatory positions and in the governance or management teams of each industry operator. The authority to govern the quality of the boards of directors and management teams of each operator ultimately lies with the industry regulator. As with the banking industry, this ought to be one of the most powerful change management tools judiciously deployed by that body. Information accessibility and transparency is another key principle we highlighted in 2011. It is a concept that links closely to communication strategy and management of the most important stakeholder. Customers need to be trusted and empowered with a full, accurate and single picture of the costs, challenges and profit margins involved in delivering the energy they consume. There can be no effective change management on such a national scale without effective, coherent and consistent communication of industry realities in a simple and easy to digest manner. Finally, “aggressive transition to pre-payment systems” was the last piece of advice we offered in that 2011 paper. This is advice that remains valid in 2020, for reasons that must now be obvious to everyone concerned.
The Nigerian electricity change management project can be made to work, and the result will be even large flows of private capital, energy and expertise into this critical industry, to fix Nigeria’s most important infrastructure problem. Making it work must be the approach to take, not just for this sector but for other areas of infrastructure delivery. That is why a wholesale reversion of privatization would be a terrible idea, and a big step backward for Nigeria.
