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Before the Power Sector Reforms Run into Fresh Hitch

05 Mar 2013

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Prof Chinedu Nebo

Chika Amanze-Nwachuku and Ejiofor Alike dissect lingering issues in the power privatisation and the risks they pose to PHCN assets sale

The journey to full implementation of power sector reforms in Nigeria commenced in 2000, with the constitution of Electric Power SectorImplementation Committee (EPIC) by the National Council on Privatisation (NCP), to undertake a comprehensive study of the electricity power industry. However, the Electric Power Sector Reform (EPSR) Act, which brought to an end both the Federal Government’s monopoly in the sector and the National Electric Power Authority (NEPA), was enacted in 2005. The enactment saw the PHCN unbundled into 18 successor companies, comprising six generation companies, one transmission company and 11 distribution firms.

The EPSR Act also stipulated that all the PHCN successor companies be privatised except the Transmission Company of Nigeria (TCN), which would remain state-owned, but run by a firm with a robust record of efficient and effective management. However, full implementation of the reform had been suspended along the line, but onlypicked up speed in August 2010, after President Goodluck Jonathan unveiled the Power Sector Roadmap.

Government had anticipated that involvement of the private sector would bring about higher generation capacities through the provision of more efficient and cost-effective power stations and improvements in the distribution sector.

Presenting the 2013 fiscal year before a joint session of the National Assembly, in October last year, Jonathan had noted that when completed, the privatisation of the PHCN generation and distribution companies, which had reached an advanced stage, would bring into the sector significant private investment, along with the requisite power output.

As the President observed, Nigeria has accomplished a number of goals in the power sector reform programme in line with the Roadmap. Bids for the generation companies (Gencos) and the distribution companies (Discos), except the Afam power station and Kaduna Disco had been conducted and preferred bidders of the power assets selected. In January, the government announced that it had commenced the process of finalising negotiations with preferred bidders, which expectedly would culminate in the execution of transaction documents, and thereafter, the handover of the power assets to the bidders.

Acting Director-General, Bureau of Public Enterprises (BPE), Mr. Dikki Benjamin, said negotiations had begun in earnest, following the successful receipt of bank guarantees for 15 per cent of the transaction value from the bidders. The finalisation of negotiations, according to the BPE boss commenced after the privatisation agency’s bankers had verified all the bank guarantees provided by the preferred bidders. Upon conclusion of negotiations, the transaction documents would be executed followed by eventual hand over of the successor companies to the core investors.

“The feedback we are receiving is that all of you are desirous that the transaction documents are expeditiously executed, if not in one day, in a few days. We are committed to making this happen” Dikki said at the January meeting.

But there are clear indications that the power sector reform, which has entered the most critical stage, may run into a hitch owing to plethora of problems. These include the challenges being faced by some of the preferred bidders in securing loads from their banks and government’s inability to resolve pending labour and legal issues, all which portend danger to the power assets sale.

Preferred bidders of the successor companies have been expressing dissatisfaction that they were stampeded into signing the Transaction and Industry Document (TID), when critical legal, financial and labour issues had not been sorted out. The investors had prior to the signing, complained that the one week notice given them by the NCP was grossly inadequate given that the Presidential Task Force on Power (PTFP), headed by Beks Dagogo-Jack, had three days earlier, proposed that the signing be held in the second quarter of 2013, to give all relevant parties in the transaction enough time to resolve all outstanding issues. Also the BPE had in January proposed that the handover ceremony be performed in the second quarter of 2013, but the NCP headed by Vice President Namadi Sambo had gone ahead with the signing notwithstanding the issues raised by investors.

By the signing of the transaction documents on February 21, preferred bidders would have had only 15 days to pay 25 percent of the transaction values and 90 days to pay the remainder, but their outcry prompted the government to give them additional six days grace for the payment of the 25 percent of the transaction value.

Pending legal issues

Apart from financial issues, THISDAY gathered that there are still some legal issues that needed be addressed before the sale of the power assets sails through.

For instance, Geometric Power Ltd, founded by former Power Minister Bart Nnaji, had a subsisting lease agreement with the Enugu Distribution Company (Enugu Disco) and the Federal Government, which ring-fenced Aba and Ariaria Business units within the Enugu Disco and leased to Aba Power Ltd. The issue has not been amicably resolved.

Aba and Ariaria business units of the PHCN were carved out of the Enugu Electricity Distribution Company, long before the enactment of the Electric Power Sector Reform Act of 2005, and handed over to Geometric Power in a decision by the Federal Government to bring the private sector into electricity business in Nigeria.

But fearing that the signing of the SPA could jeopardise the operations of the Aba Power Project, counsel to the company, Chief Wole Olanipekun, recently approached the court to obtain an injunction to restrain the government from implementing the Industry Document with Interstate until all its issues arising from the Aba Power Project are straightened out.

The company had earlier published a caveat emptor, meaning buyers beware, in the national dailies, to remind the Federal Government, its relevant agencies and other stakeholders that both Aba and Ariara business units are not part of the area bid by Interstate consortium when it sought to purchase the majority stake in the Enugu Disco.

THISDAY gathered that the Vice President, had vide a memo dated November last year, directed the BPE, who was then headed by Ms. Bolanle Onagoruwa, to disregard the 2004 MoU and the 2005/2006 lease agreement, which ring fenced Aba and Ariara Business units.

Onagoruwa’s insistence that the sanctity of the contract be respected was said to have led to her sudden removal from office on November 27, 2012.

Unresolved labour issues

Another major factor likely to derail the power sector reform are lingering labour issues. President Jonathan had incurred the wrath of the workers, when he unveiled the global power roadmap, where he indicated his administration’s plan to pursue a landmark reform that would ensure the sale of PHCN assets and make the private investors the major driver of the sector.

But to ensure the successful take-off of the reform, Jonathan had settled arrears of monetisation benefits of the workers, which were denied them for seven years by previous administrations, even when their colleagues in other sectors of the civil service had been paid. His administration also approved and implemented an unprecedented 50 per cent increase in the salary of the workers with effect from June 2011.

But these could not assuage the feelings of the workers, who believed the privatisation of the assets of the ailing power utility giant would relieve them of their jobs.

But the PHCN workers heaved a sigh of relief recently when the President approved N384billion for payment of their severance benefits. The recent approval of N384billion was in fulfillment of the agreement reached between the labour unions and the government during a recent peace talk brokered by the Secretary to the Government of the Federation, Senator Anyim Pius Anyim.

In an unexpected announcement on the eve of the TID signing, Minister of Labour and Productivity, Mr. Emeka Wogu, said payment of the N384billion, which was the agreed benefits accruing to the staff of PHCN in the previous negotiation between government and the labour unions would commence the next day.

“Payment of the agreed sum will commence immediately and that brings to an end the labour issues relating to the non-payment of benefits. So, we enjoin labour unions in the power sector to work closely with the Ministry of Power in the payment of these benefits as agreed. The process will commence tomorrow (today) and I want to assure them that this brings to an end the labour issues in the sector,” he claimed.

Wogu continued: “This payment is only for PHCN staff and in determining who should benefit, labour and government conducted a biometric exercise. The number of people benefiting is clearly defined by this agreement.

“The total package is approximately N384bn in full payment of all outstanding benefits that we agreed upon. It will be done within the best principle of transparency and accountability.”

But contrary to the minister’s pronouncement that all labour issues in the privatisation of PHCN assets had been resolved, investigations revealed that none of the pending labour issues had been sorted out. The labour minister had claimed that all “payment of the PHCN employees’ N384 severance package will start tomorrow” (on the day of the TID signing)”, but the electricity unions said none of the several agreements between them and the government had been fulfilled.

Describing the statement as politically motivated, an official of Senior Staff Association of Electricity and Allied Companies (SSAEAC) said the union was “taken by surprise by the announcement”. They workers said the minister’s announcement was only meant to goad the investors into signing the TID agreements.

Also, the National Union of Electricity Employees (NUEE), the umbrella union of the junior workers, had rejected the N384 billion approved for the payment of their entitlements.

They also threatened to shut down the sector last week if the government failed to reverse its position.

General Secretary of the union, Mr. Joe Ajaero, wondered how the government arrived at N384 billion when, according to him, the technical committee comprising government appointed actuarist – Alexander Forbes, Bureau for Public Enterprises (BPE), PHCN, and the unions were yet to complete the computation of the exit package of the workers.

Ajaero stated that Alexander Forbes and BPE officials discovered and accepted fundamental errors in the data used for their computation in the course of the committee’s discussion and had agreed to reconvene on a later date towards addressing the fundamental errors.

“It is therefore amazing that figures can be conjured to calculate the exit benefits without reference to the technical committee. The announcement is highly provocative. The figure (N384billion) is laughable because government is also aware that one third of the staff population were excluded and majority of those captured had their entitlement calculated based on two grades lower than their actual grades,” he said.

Government’s Position

Clarifying the origin of the figures, Wogu told THISDAY during the weekend that the N384billion actually emanated from the BPE, which Ajaero acknowledged as one of the organisations computing the severance package.

He noted that the government did not conjure the figures as insinuated by the workers, adding that BPE, which is the appropriate authority, submitted the figures to the government.

According to him, the figures were the results of the monetisation of the previous agreement reached with the workers.

“The figures emanated from the BPE, which is the appropriate authority. When we monetised the areas of agreement we had with the workers, it was translated into figures,” he said.

On claims by Ajaero that Alexander Forbes and BPE officials discovered and accepted fundamental errors in the data used for their computation and had agreed to reconvene to address the fundamental errors, the minister noted that no such calculations can be error-proof.

“You cannot have 100per cent accuracy once it involves figures,” he argued.

He however added that the Technical and Implementation Committee would address any discrepancy that might arise in the course of implementation.

“That is why the Implementation Committee is there. When there is any discrepancy, the implementation committee will take it up,” he added.

Ajaero had however described the N384billion as inadequate and a far cry from what was agreed upon. THISDAY gathered that the Federal Government hired a foreign firm, Alexandra Forbes, a provider of financial and risk services to liaise with the BPE and representatives of workers unions to provide assessment and evaluation of the workers’ entitlements.

NELMCO reacts

Commenting on the controversy, the Managing Director of the Nigeria Electricity Liability Management Limited (NELMCO), Dr. Samuel John Agbogun, told THISDAY that the company was not responsible for the settlement of the severance package of the PHCN workers.

Agbogun said his agency inherited about N500billion PHCN liabilities, which is outside the N384billion. He stated that the N384billion was the severance package due to the current workers of the PHCN.

According to him, severance package is not part of the liabilities inherited by NELMCO.

“BPE and the government will pay severance package. That has nothing to do with the liabilities inherited by NELMCO. Ours are liabilities to third parties. They are liabilities owed Independent Power Producers. Agip, Ibom, NIPP, Shell, Federal Inland Revenue, World Bank and the African Development Bank (ADB) are the major ones,” he said.

He explained that NELMCO was responsible for the third party liabilities and PHCN pensions, adding that the liabilities would exceed N500billion in due course.

“As long as we are buying power, they will keep on accumulating, because we pay only half of the bills and allow the balance to accumulate,” he added.

On how NELMCO would raise the funds to liquidate the liabilities, Agbogun said the agency would sell some non-core assets of PHCN and also collect outstanding electricity bills and other receivables outstanding in favour of PHCN.

He stated that NELMCO would also receive funding from the Federal Government.

NELMCO is a special purpose vehicle created by the Federal Government into which it domiciled the huge PHCN liabilities.

These liabilities are however those that cannot be settled from the proceeds of the sale of the various assets of PHCN. NELMCO will also manage the pension liabilities of the PHCN employees and sell off the non-core assets of PHCN to finance the payment of these debts.

Tags: Business, Nigeria, Featured, Power Sector Reforms

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