BEHIND THE FIGURES by Ijeoma Nwogwugwu; firstname.lastname@example.org
In a shocking twist to the long delayed power sector reform and privatisation saga, four states – Delta, Edo, Ekiti and Ondo – came out last week to condemn the process conducted by the Bureau of Public Enterprises (BPE) for the sale of the distribution companies (Discos) carved out from the unbundling of the Power Holding Company of Nigeria.
Speaking on behalf of the four states last Thursday, the governor of Edo, Mr. Adams Oshiomhole and his counterpart in Ekiti, Mr. Kayode Fayemi, stated that the process for the sale of Benin Distribution Company Limited was flawed, fraudulent, lacking in transparency and had been manipulated in favour of one bidder, the Vigeo Power Consortium, to trounce a competitor, Southern Electricity Distribution Company Limited, promoted by the four states. Not stopping at discrediting the power programme, the governors warned Vigeo to steer clear of their states on the grounds that it lacked the technical competence to run the Benin Disco, promising to take their assessment of the transaction to President Goodluck Jonathan.
Vigeo, Southern Electricity and Rockson Engineering Nigeria Limited, having scaled through the evaluation of their technical bids, had been prequalified by the National Council on Privatisation (NCP) to have their commercial bids opened by the BPE last Tuesday. However, before the D-day, Rockson was disqualified for failing to submit the security for the distribution asset as stipulated under the Request for Proposals (RFPs) provided by the BPE to all the bidders. With Rockson’s disqualification, Vigeo and Southern Electricity were the only eligible contenders for the Benin Disco.
On the day of the commercial bid opening (last Tuesday), which was shown on live television for the whole world to see, Vigeo, as stipulated under the criteria for the selection of the “presumptive” preferred and reserve bidders, was shown to have submitted a higher aggregate technical, commercial and collection (ATC&C) loss projection of 21.78 per cent, relative to Southern Electricity’s 17.72 per cent.
On this basis, Vigeo was declared the “presumptive” preferred bidder that would have its commercial proposal subjected to a consistency test by the Nigerian Electricity Regulatory Commission (NERC) to determine if its business and financial plans are consistent with its loss projection for the Benin Disco. Should Vigeo fail the all-important consistency test, it will be disqualified and Southern Electricity shall step in as the “presumptive” preferred bidder that will undergo the same consistency test.
But before NERC could conclude its test, the four governors had stepped in to condemn the process in its entirety and by their utterances are threatening the very foundation of the Federal Government’s reform agenda. In my assessment, not only are the governors, like the politicians that they are, very, very bad losers, they have displayed a reckless and alarming disregard for due process and playing by the rules of the privatisation process.
Even more disheartening was the fact that Oshiomhole, who by virtue of his presidency of the Nigeria Labour Congress (NLC), was a member of the NCP between 1999 and 2005, and more than anyone else, should have an informed grasp of the ground rules for privatisation transactions, came out to discredit a process that was widely applauded for its transparency. It basically proved that Oshiomhole, who had repeatedly informed the labour unions, especially the electricity unions, that government has no business in business, was only mouthing platitudes when it suited him. The question to ask is what message were the four governors, in the habit of embarking on overseas junkets in the name of looking for investors, trying to convey, if they are unwilling to respect the sanctity of this particular process?
But let’s get down to the brass tacks of the governors’ allegations: The governors had said, “Before the opening of the bid process, funny things that are (sic) not transparent took place… The process is full of fraud and it is not acceptable to our people and therefore, we will not allow the company that so claimed to have won the bid process to operate in our states. The state governments involved have invested in the power generation process. The process was full of fraud and therefore we will not allow the company to operate in our states.”
Curiously, the governors, in making the allegations, failed to clarify or provide details on the “funny things” that took place before the bid process. Neither did the four governors express their grievances with respect to the “funny issues” that took place before the commercial bids were opened. They only did so after the consortium that they backed had attended a series of bidders’ conferences held to address their questions and concerns and had lost to Vigeo in a fair and transparent process.
Continuing, the governors said the transaction was rigged to favour Vigeo as Southern Electricity scored 898 points to Vigeo’s 847 points during the technical evaluation of the bid process and ought to have emerged the preferred bidder. “The BPE has corrupted the process. The company that was supposedly awarded the preferred bidder has no technical competence, experience and the financial capability to manage such an extensive territorial area like the Benin distribution area,” they declared.
But the governors could not have been more wrong in their assessment of which of the consortiums should have emerged the “presumptive” preferred bidder. First and foremost, it is not the scores that bidders get during the evaluation of their technical bids that determines their emergence as winners of a government enterprise slated for sale. The technical evaluation is a process conducted by the BPE to determine the technical and financial capacity of a bidder to run a company being sold. A cut-off mark or threshold, in this case, 750 points, is always established by the BPE and its advisers, and is used to prequalify the bidders for the next phase of the transaction. It is only when the bidders’ technical proposals are assessed and deemed to have passed the established threshold that they are prequalified to have their financial proposals, or in this particular transaction, commercial proposals opened.
At this stage, any of the technically prequalified bidders could win the company placed on the bidding block, as it entails their financial or commercial bids being opened in full public glare, the results announced, and the preferred and reserve bidders emerging from the process. From this point forward, the transaction could only be deemed manipulated if despite the results that have been announced, the presidency indiscriminately decides to ignore them and selects a bidder who did not post the highest bid (which is what happened with a few of the privatisation transactions under the Obasanjo administration). Fortunately, this was not the case with the commercial bid opening for the discos, so how the four governors arrived at their conclusion was puzzling to say the least.
What is more, that the four state governors misguidedly announced the technical scores of Southern Electricity and Vigeo Power, and went ahead to undertake a comparative analysis of the two technical bids, showed that they had gone out of their way to compromise the process, which should automatically disqualify their bid.
They obviously forgot that each of the bidders was bound by a confidentiality agreement that does not allow them to have access to or publicise the scores of the technical evaluation, not to mention that of a competitor. It is only the Technical Committee of the NCP that is mandated to do so. That they did so, needs to be investigated and punitive action taken against officials either in the BPE, NCP or NERC that gave the promoters of Southern Electricity access to confidential information.
But even if we were to ignore their misconstrued assessment of the transaction and focused on their concern over their investments in the Benin Disco, this is an issue that has already been addressed by the managers of the process. In recognition of the fact that all the 36 states of the federation have over the decades invested considerable resources in distribution infrastructure, the NCP and BPE had allotted 10 percent in each of discos to the states. The 10 per cent was to be allotted from the outstanding balance of 35 per cent after a core investor might have acquired 60 per cent and another 5 per cent was allotted to staff of PHCN, leaving the federal government with 25 per cent in each of the discos.
But the proposal was rejected by the states on the grounds that they wanted a higher stake in the 11 discos. Owing to their agitation, their stake was increased to 15 per cent, which was again rejected. In view of the fact that the states were recognised as important stakeholders in the privatisation of the discos, NERC then accepted to undertake a valuation of their investments in the distribution infrastructure and arrive at an acceptable stake that would be held by the states. In addition, the NCP and BPE encouraged the states to join the bidding consortiums so that in addition to their statutory shareholding in the discos, they could own more shares in the distribution assets.
It was for this reason states like Lagos, Rivers, Akwa Ibom, Bayelsa, Cross River, Anambra, Abia, Enugu and Ebonyi, respectively joined bidding consortiums to contest for the discos in their jurisdictions. Fortuitously, it was only four states – Bayelsa, Rivers, Cross River and Akwa Ibom – as members of the 4Power Consortium that emerged “presumptive” preferred bidders last Tuesday.
Meanwhile, Enugu, Ebonyi, Anambra and Abia, which bid for the Enugu Disco and Lagos, which bid for Eko and Ikeja Discos that boast the highest revenue streams, lost out. Yet, despite their disappointment, as enunciated by Governor Peter Obi of Anambra State, none of these states that lost to other contenders, have gone out on a limb to run down the privatisation process. Not even Mr. Aliko Dangote, whose company, Dangote Power, failed to meet the deadline for the submission of bids has condemned the process.
Their losses, notwithstanding, nothing stops the states from still sitting down on the negotiating table with the bidders that are eventually declared winners of the discos and working out an arrangement that would give them additional equity in the assets. Indeed, it will be in the interest of the core investors to have the states governments as partners, as this would make life easier for them, especially in areas like getting approvals for right of way, community relations and waivers for the multiplicity of levies and taxes that the states are likely to impose.
So instead of acting as spoilers and jeopardising a process that has the widespread support of a populace in desperate need of regular electricity supply, the states should explore the opportunity presented by the privatisation programme to increase their stakes in the 11 discos currently being sold. This is one reform programme we can ill-afford to reverse or stall any longer. As critical and influential stakeholders in the polity, Oshiomhole and his colleagues need to safeguard and support the power sector reform programme, not endanger it.