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The Power Sector Privatisation: The Journey So Far

02 Nov 2013

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President Goodluck Jonathan

Following the controversies which shrouded the privatisation programme of the federal government during the administration of former President Olusegun Obasanjo, the National Council on Privatisation (NCP) had in 1999 constituted the Electricity Power Sector Implementation Committee (EPIC) to undertake a comprehensive study and review of the entire industry in order to prepare grounds for liberalising the electricity power sector to attract private sector investment and ensure competition in the market.

Prior to the enactment of the Electricity Power Sector Reform Act (EPSRA), 2005, the Federal Government was responsible for policy formulation, regulation, operation, and investment in the Nigerian power sector. However, EPSRA Act became law in 2005, providing legal backing to the power sector reform programme, leading to the launch of the Power Sector Roadmap by President Goodluck Jonathan in August 2010.

Subsequently, the Nigerian Electricity Regulatory Commission (NERC) was reconstituted to give the required institutional support to ensure a balanced regulatory framework to protect both investors and consumers. Also, the Nigerian Bulk Electricity Trading (NBET) was further created to provide securitisation which was seen as critical to driving power production efforts.

The services of a management contractor-Manitoba Hydro International (MHI) of Canada was also engaged in fulfilment of the power sector roadmap to reorganise the Transmission company of Nigeria (TCN) into technically, financially and commercially viable and market driven company.

The Unbundling of PHCN Companies
The federal government also established the Power Holding Company of Nigeria (PHCN – the initial holding company) and subsequently unbundled it into eighteen (18) successor companies to transfer of management and financing of successor company operations to the organised private sector; establish an independent and effective regulatory commission to oversee and monitor the industry as well as focus the federal government on policy formulation and long-term development of the industry, among others.
The objective was to achieve increased access to electricity services, improved efficiency, affordability, reliability and quality of service and greater investment in the sector to stimulate economic growth.

Successor Companies
However, the unbundling leaves the Federal Government with three hydro and seven thermal generating stations with a total installed capacity of about 6,852MW, with available capacity of 3,542MW (as of 31st July 2010).
Each entity had been incorporated as a single-asset generating company; a radial transmission grid (330kv and 132kv), owned and managed by the TCN, with the responsibility of undertaking the system operation and market settlement functions, respectively as well as eleven distribution companies (33kv and below) that undertake the wires, sales, billing, collection and customer care functions within their area of geographical monopoly.

A competitive tender was thereafter carried out to receive bids from core investor groups (inclusive of competent generation asset owner/operators) for a minimum of 51% of equity in the following successor thermal generating companies including Afam Power Plc; Sapele Power Plc; Ughelli Power Plc; Geregu Power Plc as well as a separate concessioning process for successor hydro generating companies including Shiroro Hydro Power Plc; Kainji Hydro Power.

A similar competitive tender was carried out to receive bids from core investor groups (inclusive of competent distribution asset owner/operators). They are Abuja Electricity Distribution Plc; Benin Electricity Distribution Plc; Eko Electricity Distribution Plc; Enugu Electricity Distribution Plc; Ibadan Electricity Distribution Plc ; Ikeja Electricity Distribution Plc; Jos Electricity Distribution Plc; Kaduna Electricity Distribution Plc; Kano Electricity Distribution Plc; Port Harcourt Electricity Distribution Plc and Yola Electricity Distribution Plc.

Remarkable Patronage from Investors
In December 2010, the NCP advertised for Expressions of Interest (EOIs) from prospective core investors interested in acquiring controlling stake in the 11 successor distribution firms created out of PHCN. By March 2011 deadline for submission of EOIs, 180 applications were received.

However, 80 bidders were shortlisted. The bidders were later reduced to 72-prequalified bidders when some of the prospective firms couldn’t pay the mandatory $20,000 fee to purchase the Request for Proposals (RFPs).

Further to the exercise, by the submission deadline of July 31, 2012, the BPE had received 54 proposals from pre-qualified bidders, out of which 10 of the bids failed the first test of completeness and responsiveness. The remaining 44 bids were subjected to full technical evaluation out of which 32 bids submitted by 20 bidders scored the minimum of 75 per cent that was needed to move to the next stage. They were subsequently asked to submit post qualification bidders’ guarantee following approval of the evaluation by the NCP.

Eventually, after several hurdles, the NCP in October 2012 approved 14 preferred bidders for the Power Holding Company of Nigeria (PHCN) generation and distribution companies in its ongoing privatisation programme.

Rising from its sixth meeting, the Council, in Abuja, affirmed Amperion Power Distribution Company Limited, Transnational Corporation of Nigeria Plc Consortium, CMEC/Eurafic JV Consortium, Mainstream Energy Solutions Limited and North-South Power Limited as the preferred bidders for the five thermal and hydro power stations being sold by the Federal Government to core investors. However, billionaire businessman, Mr. Emeka Offor, who failed the consistency test conducted by the Nigerian Electricity Regulatory Commission (NERC), but fought very hard to hold on to the Abuja and Enugu Distribution Companies (Discos), was forced to settle for only Enugu Disco.

The NCP also disqualified Southern Electricity Distribution Company for submission of multiple bids for Benin Disco and announced Vigeo Power Consortium as the preferred bidder for the distribution company.
At the expiration of the January 31 deadline for the submission of Expressions of Interest (EOIs) from prospective bidders for the two companies, the BPE received 19 applications for Kaduna Disco and 29 applications for Afam Generation Company.
Consequently, on February 4, the privatisation agency sent Requests for Proposals (RFP) to the 48 prospective bidders.
The Afam and Kaduna discos were among the 17 PHCN successor companies that were earlier advertised for sale in December 2010 along with the 15 other PHCN Successor Companies that went through a full competitive tender process, which culminated in the submission of technical and financial proposals in July 2012.

Temporary Hitch in privatisation Process
However, following the rigorous technical evaluation that all bids were subjected to, none of the bids received for the Afam and Kaduna utilities scored the minimum 75 per cent required to progress to the financial bid stage.

The Afam plant bid was particularly nullified because the former Minister of Power, Prof. Barth Nnaji was said to have links with one of the firms which bided for the asset. The incident led to the Minister’s resignation, thereby raising doubts over the transparency of the programme while many doubted if it would ever be concluded successfully.
The development forced the National Council on Privatisation (NCP) to order a re-run of the entire transaction as it was not prepared to settle for a second best. Consequently, the pre-due diligence conference for the re-tender of Afam Power Plc and Kaduna Electricity Distribution Plc was on March 4 in Abuja.

Grappling with Payment Deadline
Initially, some of the preferred bidders had difficulties getting credit from their financiers over controversial circumstance. However, at the end of the August 21 deadline, 13 preferred bidders fulfilled the payment of the remaining 75 per cent of their bids for the power generation and distribution companies, except for Interstate, the preferred bidder for Enugu Distribution Company failed to meet the deadline. It eventually complied. CMEC/EUAFRIC Energy JV, which also had compliance issues was referred to the legal arm of the NCP for advise.

Labour issues
The privatisation programme had however, been bedevilled by labour related issues. Power sector workers had vowed to cripple the exercise if their severance benefits were not taken care of before the companies were eventually transferred to their new owners.
As a result, there had been pockets of protests by workers to compel government to accede to their demands.

However, the Federal Government which was determined to create a hitch free transition had said it had equally set aside the entire proceed of N384 billion from the sale of power assets to settle labour liabilities. A total of $3 billion is expected from the proceeds.
At the last count, the BPE said it had despatched a team of consultants and its staff for the biometric data capture of 1, 478 employees of the Enugu Distribution Company who could not be audited because of virus attack on the system were their names were stored.

The Labour Angle
However, on September 30, President Goodluck Jonathan formally handed over Share certificates and licences to 14 new core owners of PHCN successor companies.
Jonathan praised Nigerians for exercising great patience and confidence “putting up often with darkness, noisy power generating sets, related pollution and daily disruption in their lives” and assured them of better days ahead.

Ordinarily, the formal transfer of assets should have allowed the new investors immediate access to the power utilities but Minister of Power, Prof. Chinedu Nebo, said that could only be possible when the remaining PHCN workers would have been paid their entitlements within October in order to have a smooth and peaceful transition.

Meanwhile, Jonathan, while admitting a number of limitations with actual service delivery noted that there had been remarkable progress with steady and sustained increase in national power generating capacity.
He however, promised Nigerians that “things can only get better, from this point onwards.”
Jonathan further said while the power sector could not be revitalised overnight, measures were being carefully worked out to address all other issues particularly the resolution of labour-related concerns.

He said: “In partnership with the labour unions, we have been able to come up with an outcome that is beneficial for all stakeholders...the payment of all labour-related benefits commenced earlier in August this year, and is almost concluded as a condition precedent to today’s event.”
Jonathan said: “We can all look forward to a better time very soon as we have seen in telecommunication and banking sectors. I am confident that the power sector will promise no less, knowing the calibre of those who are taking over.”

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