PHCN Office
The strategic position of Lagos State to the nation’s economy was again confirmed by the high concentration of bidders for the distribution companies created from the unbundling of the Power Holding Company of Nigeria (PHCN) slated for privatisation. The choice of successful bidders will be determined by a combination of factors chief among which is performance record, reports Festus Akanbi
As the identities of the 54 power distribution firms that met the July 31 deadline for the submission of bids were released to the public, economic analysts at the weekend said the federal government may have once again demonstrated its resolve to keep to the time-table drawn for the nation’s power sector reforms. The rising wave of optimism is not unconnected with the determination of the federal government not to shift ground on the deadline for the submission of technical and financial proposals for the privatisation of the 11 distribution companies (Discos) created from the unbundling of the Power Holding Company of Nigeria (PHCN).
The transaction timeline reveals that the evaluation of the technical bids will take place between August 14 and 28, 2012. The National Council on Privatisation (NCP) will approve the results of the technical evaluation by September 11, 2012.
Barth Nnaji, minister of power, told journalists in Lagos, a fortnight ago that extending the bid deadline would negate President Goodluck Jonathan’s promise to ensure transparency in the privatisation of PHCN.
The Contenders
A breakdown of the bids received at deadline for the 11 distribution companies slated for privatisation shows that the Abuja Electricity Distribution Company Plc received five bids from prospective investors; Benin Electricity Distribution Company Plc seven bids; Enugu Electricity Distribution Company Plc four bids; Eko Electricity Distribution Company nine bids; Ibadan Electricity Distribution Company Plc seven bids; Ikeja Electricity Distribution Company 10 bids; Jos Electricity Distribution Company Plc two bids; Kaduna Electricity Distribution Company Plc two bids; Kano Electricity Distribution Company Plc two bids; Port Harcourt Electricity Distribution Company Plc three bids, and Yola Electricity Distribution Company Plc three bids.
A further breakdown of the bids showed that in all, Lagos State, by the virtue of the number of bids for the state’s power market, emerged as the juiciest market with a total of 19 bids.
For Ikeja power distribution, names of the competing firms include Oando Consortium, Rockson Engineering Limited, SEO International, Amperion Power Distribution Coy Ltd, Honeywell Energy Resources International Ltd, West Power and Gas Ltd, Vigeo Holdings, Gumco, African Corporation (AFC) and CESC Consortium, Daniel Power Plant Company Nigeria Ltd and KEPCO/NEDC Consortium. Firms that were able to beat the July 31 deadline for Eko Distribution are Oando Consortium, Integrated Energy Distribution &Marketing Ltd, NPD Consortium, SEPCO-Pacific Energy Consortium, West Power & Gas, Electric Utilities Nigeria Ltd, KEPCO/NEDC Consortium, ENL Consortium Ltd, and Honeywell Energy Resources International Ltd.
Lagos Market, a Test Case
Economic analysts maintained that higher appetite shown for the Lagos market merely confirmed the status of Lagos as the undisputable business nerve centre of Nigeria. According to a Lagos-based analyst, Mr. Cornelius Akinluyi, apart from the population advantage, Lagos plays host to a congregation of business outfits with their premises scattered all over the state. He said whatever measure of success recorded in the Lagos area would determine the level of performance in other parts of the country. Over time, one problem which has continued to feature prominently in the list of complaints of business-owners is the cost of operation especially with the regards to the cost of alternative source of power. For instance, members of the Manufacturers Association of Nigeria (MAN) claimed to have been spending over N72. 6 billion yearly on Automotive Gas Oil (AGO), otherwise known as diesel, to power their respective generating sets, sequel to the lingering power supply crisis in the country. The expenditure profile was disclosed recently in Lagos by a council member of MAN, Mr. Reginald Odia. This avoidable expenditure translates to over 40 per cent of the total production cost for industrialists. MAN and National Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) had at various fora stressed the need for the Federal Government to ameliorate the challenge of inadequate power supply for the growth of the industrial sector.
Oando Leads the Pack
One of the companies that lapped on the lacuna created by the power crisis in the industrial sector in Lagos area is the Oando Gas & Power through one of its subsidiaries, Gaslink. Gaslink pioneered private sector distribution of natural gas - known to be clean, cheap, and reliable - to industrial and commercial consumers in Nigeria. Today, the company operates a 100km of natural gas pipeline network in Lagos providing over 130 leading companies, out of which more than 80% use the fuel to generate power for their operations. Oando Gas and Power also took advantage of the Lagos gas grid to build its first Independent Power Plant – Akute Power- in 2010, to provide dedicated, uninterrupted power supply to Lagos Water Corporation.
The gas-fired IPP has become the fulcrum of the Lagos Water Corporation’s success story, having stepped up capacity utilisation ever since by 300%, ensuring constant water supply to millions of Lagos residents and saving the state government $3.9 million annually in energy cost.
Lagos State Governor Babatunde Fashola said while speaking during the inauguration of Akute Power Plant that,“This project is a classic example of how public private partnerships can benefit the people. It means that by shifting from diesel to gas, we are saving 27 per cent of our energy cost to provide water, which translates to about $11,000 of taxpayer’s money daily and $3.9 million annually.”
THISDAY also learnt from a source close to Oando Gas and Power that the company had signed a power purchase agreement to build its second IPP in Lagos.
Analysts therefore are of the opinion that having successfully executed a direct investment through the gas to power projects, and secured a public private partnership agreement with the Lagos State government on Akute Power Plant, there is no doubt that Oando Plc has experience to fall back on as far as its bids for the distribution companies in Lagos are concerned.
Another company with good chance is Rockson Engineering, which already has vast experience in power generation by building the Omoku (Rivers), Alaoji (Abia), Gbaran (Bayelsa), and Egbema (Imo) independent power plants, IPPs, will have an edge over other bidders. In her recent presentation to the American Business Council on the investment opportunities and current status of privatisation in the power sector held in Lagos, the Director-General of the Bureau of Public Enterprises (BPE) Bolanle Onagoruwa said Nigeria’s power sector privatisation process was on track.
She said the need to privatise the power sector was driven by Nigeria’s low generation, distribution and transmission capacity as well as the bloated and inefficient power sector workforce put at 48,000 people, the lack of commercial orientation by PHCN and the poor corporate governance and opaque balance sheet of PHCN.
Running through the privatisation timeline, she said, “The Privatisation of the PHCN successor companies is proceeding as planned, industry documents were issued to bidders on March 30, 2012, new tariffs are expected to come on stream in June, 2012, gas prices are being transitioned up to export parity by 2015, and we are working closely with the World Bank to put in place a Partial Risk Guarantee (PRG) for the power sector”.
The BPE boss also said in her presentation that three methods had been approved by the National Council on Privatisation (NCP) for the privatisation of PHCN, which are core investor sale, management contract, and concession. According to the roadmap for power sector privatisation, the generating companies (gencos) are slated to be sold 100 percent to core investors. Manitoba Hydro International of Canada has emerged as the new management contractor, and the hydro generation companies, Kainji and Shiroro are scheduled for concession.
The BPE received 331 expressions of interest last year and shortlisted 207 companies to participate in the process, among which are Dangote Industries Limited, Tata Group, Oando and Essar Group of India. The power sector reform agenda has undergone several milestones since the enactment of the Electricity Reform Act of 2005, which include the unbundling of the PHCN into 17 successor companies, establishment of the Nigerian Electricity Regulatory Commission (NERC), setting up of the commercial framework for the sector and the bulk trader, and the expected opening of financial bids and declaration of winners in October.
Nigeria, with a population of 160 million people is estimated to need about 40,000 Mega Watts (MW) of electricity over the next decade, but currently has less than 6,000 MW of available capacity, leading to costly blackouts that have kept the Nigerian economy from growing at its full double digit potential for years. Nigeria needs $10 billion a year, or up to $100 billion of new capital investments over the next ten years, to meet its power sector needs, the power minister stated recently.
President Jonathan had made reforming the power sector a priority. Meanwhile, analysts say a significant upsurge in electricity output would bring him more support from Nigerians who have been reeling under the yoke of a disappointing power sector. Over the past two decades, the stalled expansion of Nigeria’s grid capacity, combined with the high cost of diesel and petrol generation, has crippled the growth of the country’s productive and commercial industries.
Industry affairs commentators said the development has stifled the creation of the jobs which are urgently needed in a country with a large and rapidly growing population; and the erratic and unpredictable nature of electricity supply has engendered a deep and bitter sense of frustration that is felt across the country as a whole and in its urban centres like Lagos in particular.
To meet our Vision 20:2020 target of 40,000MW, it will require investments in power generating capacity alone of at least US$ 3.5 billion per annum for the next 10 years.
Correspondingly large investments will also have to be made in the other parts of the supply chain (i.e. the fuel-to-power infrastructure and the power transmission and distribution networks). These sums cannot and will not be funded and directed by the federal government. Rather, central to the development of the sector will be the need to sensitise the private sector to partner with government in this endeavour.
According to the road map for power sector reforms, the federal government is acutely aware that improvements in service levels cannot wait until the industry has been commercialised. The government is said to be taking active steps to ensure modest but genuinely-realisable improvements in the amount and quality of electricity supplied to customers in all regions of the country.