UPDATE 1-Nigeria scraps Canada power contract in privatisation setback

Wed Nov 14, 2012 6:57am EST

* Power outages biggest brake on economic growth

* Canadian firm's appointment was welcomed by industry

* Political interference key concern for foreign investors

By Joe Brock and Felix Onuah

ABUJA, Nov 14 (Reuters) - Nigeria has terminated a $24 million electricity contract with Canada's state-owned Manitoba Hydro, the presidency said on Wednesday, in a setback for plans to privatise a moribund power sector that is holding back economic growth.

The hiring of Manitoba to manage the national power transmission network had been seen by industry experts as a major step forward for the reform process.

The presidency said President Goodluck Jonathan annulled the deal because "due process was not followed in the award of the contract". But his decision could add to fears about political interference in the sector that analysts say are holding back badly needed foreign investment.

Africa's most populous nation of more than 160 million holds the world's ninth-largest gas reserves but is blighted by power cuts which last several hours a day, forcing businesses and individuals who can afford them to rely on diesel generators.

Economists say a successful power privatisation could push growth in Africa's second largest economy into double digits, from around 6.5 percent now. Yet critics question the integrity of the process, which looks set to leave much of the sector in the hands of powerful local oligarchs with scant experience.

"Mr President has cancelled the Manitoba power contract with immediate effect," Presidency Spokesman Reuben Abati told Reuters.

"Mr president would not want to comprise due process in anyway ... I assure you that this does not in any way affect the on going privatisation of the power sector," Abati later added.

Choosing a firm to manage transmission took more than five years, in a process supported by the World Bank.

Standard and Poor's upgraded Nigeria's credit rating last week but said a failure to push through reforms to areas like power could put its more positive view at risk.

Manitoba was supposed to start work at the beginning of September but transmission is still in control of the government. Sources within the privatisation process said the ministry of power was unhappy handing over to Manitoba.

"We had a clear contract and we were meant to be given delegation of authority ... but that didn't happen," Don Priestman, the head of the Manitoba-run Transmission Company of Nigeria, told Reuters by phone.

"There are forces working against reform," he added, saying a similar contract Manitoba has in Kenya was working well.

The power ministry did not respond to calls for comment.

Nigeria is in the middle of privatising the bulk of its power plants and distributing networks, in a reform process supposed to give foreign investors the confidence to provide the estimated $10 billion-a-year the electricity sector needs.

Transmission is the key link between power plants and sub-stations feeding end users, and its poor management in the past has made investments in producing or distributing power unprofitable, industry experts say.

Nigeria's lack of power helps perpetuate social inequality in a country where the majority survive on $2 a day or less.

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