A recent suspension of the board of the Ibadan Electricity Regulatory Commission (NERC) by the Nigerian Electricity Regulatory Commission (NERC) over N6 billion loan, when the money paid by the companyâ€™s core investor for the acquisition of Yola Electricity Distribution Company (YEDC) is still trapped in the treasury of the federal government, has the potential to scare investors in Nigeriaâ€™s power sector, Ejiofor Alike reports
When the federal government put Nigeriaâ€™s power assets on offer under the power privatisation programme, foreign investors largely boycotted the exercise following concerns over Nigeriaâ€™s reputation of not honouring agreements, especially when there is a change of baton at any level of government and its agencies.
Over $2.6 billion was staked by indigenous investors in the acquisition of the assets of the defunct Power Holding Company of Nigeria (PHCN).
In fact, before Taleveras Group paid $260.05 million for Afam Power Station and North West Power Consortium emerged preferred bidder for Kaduna Electricity Distribution Company, Nigerian investors had raised a total of $2.238 billion to pay for 10 out of 11 distribution companies and five out of seven generation companies.
Taleveras Group later paid $260.05 million for Afam; while CMEC/Euafric paid $201 million for Sapele to bring the total figure to $2.699 billion.
For the distribution companies, 4Power Consortium paid $124 million for Port Harcourt Electricity Distribution Company; while Interstate Electrics paid $126 million for Enugu Disco.
KANN Consortium paid $164 million for Abuja Disco; KEPCO/NEDC Consortium paid $134.75 million for Ikeja Disco; while Sahelian Power SPV Limited paid $137 million for Kano Disco.
Others include Vigeo Holdings ($129.5 million) for Benin Disco; West Power and Gas ($135 million) for Eko Disco; and Aura Energy ($81.8 million) for Jos Disco.
For the generation companies, Transcorp paid $300 million for Ughelli Power Station; Amperion paid $132 million for Geregu Power Station; while CMEC/Euafric paid $201 million for Sapele Power Station.
Mainstream Energy Solutions Limited paid $257 million for Kainji/Jebba; North-South Power Company Limited paid $111.654 million for Shiroro; KEPCO/NEDC paid $407 million for Egbin Power Station.
Another indigenous firm that demonstrated faith in the privatisation programme is Integrated Energy Distribution and Marketing Company (IEDMC), which paid $169 million and $59 million for Ibadan Disco and Yola Disco, respectively
With foreign investors shunning the power privatisation exercise, all the deals were funded by the Nigerian banks, thus worsening the banksâ€™ exposure in Nigeriaâ€™s energy sector, especially after funding the acquisition of the oil and gas assets divested by the international oil companies (IOCs), in the face of the plummeting prices of crude oil.
Integrated Energy, a firm promoted by Mr. John Olatunde Ayeni, Capt. Hosa Okunbor, and a former military head of state, Gen. Abudulsalami Abubakar (rtd), had acquired the Yola and Ibadan Discos for $228 million in 2013 under the privatisation programme.
A year later, however, Integrated Energy was forced to declare force majeure and return Yola Disco to the federal government on the grounds that it was impossible to operate and access the assets of the electricity distribution firm in the North-east as a result of the Boko Haram insurgency.
THISDAY gathered that the company declared force majeure on six occasions, starting from November 10, 2013, just 10 days after the assets of Yola Disco were handed over to it, while the last force majeure reportedly came on May 13, 2015.
After a joint evaluation of the electricity asset, as provided under the terms of the share purchase agreement (SPA), the Bureau of Public Enterprises (BPE) and the Ministry of Power, in the twilight of President Goodluck Jonathan administration, had approved $186 million as the sum to be refunded to Integrated Energy.
However, the Jonathan-led administration did not refund this money until President Muhammadu Buhari took over and his administration renegotiated and reached an agreement with Integrated Energy on a payout of $87.8 million as against the $186 million earlier approved as compensation to the company.
But the payment of the renegotiated sum has stalled since 2016, thus putting the investments of Integrated Energy in jeopardy and potentially creating non-performing loans in some banks, particularly Skye Bank, which funded the transactions.
The loan used to fund the acquisition of Yola Disco was believed to have led to the erosion of Skye Bankâ€™s capital adequacy and liquidity ratios and thereafter, sacking of the erstwhile board and management of the bank.
It was also believed that if the former administration had released even 50 per cent down payment at that time when the first payment was approved in 2015, the Skye Bank crisis would have been averted.
Even since 2016 when the fresh pay-out was renegotiated with this present administration, the federal government has not refunded Integrated Energy.
From the foregoing, it is, therefore, evident that the federal government, which seeks to attract investments from the private sector, also places landmines that destroy businesses and private investments that kept faith with governmentâ€™s investment drives.
One of the private investors in the power sector told THISDAY, off the record, at the weekend, that the Skye Bank issue was similar to the case of â€œan elder who sent a child to go and collect salt from the neighbours and also sent heavy rain after him to destroy the salt.â€
â€œThe government embarks on investment drive but when people stake their money, the same government will destroy their investments through lack of respect for agreements and inconsistent policies,â€ he added.
Ibadan Disco as Latest Victim
To save its investments from collapse, Integrated Energy was said to have borrowed money from its subsidiary, Ibadan Disco, which the power distribution firm was said to have sourced from a loan extended to it by the Central Bank of Nigeria (CBN) to upgrade its distribution assets.
But in a recent statement that shocked investors in the power sector, NERCâ€™s Head of Media Unit, Mrs. Vivian Mbonu, had announced the suspension of the board of Ibadan Disco, citing the companyâ€™s failure to recover the loan from Integrated Energy.
â€œThe loan was granted by IBEDC from funds released to all Discos by the CBN under the Nigeria Electricity Market Stabilisation Funds (NEMSF) for the purpose of improving the networks and reducing aggregate technical, commercial and collection losses.
â€œThe commission had earlier fined IBEDC a sum of N50 million on the September 18, 2017 for non-compliance with Order No NERC/173/2017 directing the company to fully recover the outstanding sum of N5.7 billion being the balance of the loan granted by the utility to IEDMG,â€ Mbonu explained.
However, in a reaction, Ibadan Disco faulted NERCâ€™s decision, reminding the regulatory agency that both parties had reached an understanding in respect of the N5.7billion outstanding due for payment by Integrated Energy.
According to the Disco, the two parties reached an understanding that the repayment of the N5.7billion plus interests would be made from the refund of the sum due from the federal government on the stalled Yola Electricity Distribution Company transaction.
This position, according to Ibadan Disco, was to the knowledge of the BBPE.
Ibadan Discoâ€™s clarification, which was conveyed in a statement by the Company Secretary, Seye Alayande, also indicated that the understanding from BPE, which was conveyed to NERC, was that the refund from Yola Disco, which had been due to Integrated Energy as far back as 2015, could only be made after the 2018 Appropriation Bill is signed into Law.
However, to demonstrate commitment and good intention, Integrated Energy also reached an understanding with NERC to pay N150 million monthly to Ibadan Disco beginning from January 2018, while awaiting the refund from BPE in respect of Yola transaction.
Indeed, NERC acknowledged that as at April 20, 2018, the payment for January, February and an additional N130million had been made.
Ibadan Disco also claimed that as at June14, 2018, Integrated Energy had made all outstanding payment up till May 2018, in respect of the monthly N150 million commitment.
The company, therefore, questioned what it described as shocking and seemingly hasty decision to suspend its directors who had not only demonstrated willingness and commitment to fulfilling its financial obligations to Ibadan Disco, but have collectively shown dedication to the cause of the company.
Also in a separate reaction, signed by Ayeni in his capacity as the Vice Chairman of Integrated Energy, the core investor re-echoed the position of Ibadan Disco, saying that it had instructed its bankers to effect the payment of N300 million to cover the installments due in April and May.
According to Ayeni, the letter of instruction to Stanbic IBTC Bank Plc, dated June 14, 2018, was acknowledged by the bank on the same date.
â€œIndeed, we had acted with the aim that the required repayments would be received by Ibadan Disco on June 15, 2018 but for the public holidays of June 15 and June 18, 2018, which stalled the process.
â€œWe have also effected the payment of the N20 million being the balance of the March installment. Right now, Ibadan Disco is in receipt of the total sum of N320 million, which brings our total installment payments up to date,â€ Ayeni added.
Some operators in the power sector, who spoke to THISDAY, have condemned NERCâ€™s action, aimed at making Ibadan Disco the latest victim of governmentâ€™s inconsistency.
An official of one of the Discos told THISDAY on condition of anonymity that NERCâ€™s action could erode investor confidence in the power sector.
â€œWhat is happening now is one of the reasons no foreign investor agreed to bring money when this privatisation started, no matter how Prof. Bart Nnaji (former power minister) tried to use his personal integrity to woo them. The reason is because Nigerian government and its agencies do not honour agreements.
â€œA new leadership came to NERC and refused to abide by the agreements the previous leadership of the agency reached with Integrated Energy. Nigerian government and her agencies do not respect sanctity of contracts.
â€œA government owed an investor N6.6 billion. When a new government came, it changed the agreement to N3.1 billion. That was why foreign investors did not buy the assets despite Nnajiâ€™s widely acclaimed international reputation. The former minister only succeeded in getting foreign investors to sign Memorandum of Understanding (MoU) and technical services agreements with the indigenous players that bought the assets,â€ he explained.
Another investor in the power sector, who also spoke on the Ibadan Disco crisis, re-echoed this sentiment, saying that â€œall the funds for the acquisition of the power assets came from the Nigerian banks and this is how NERC wants to destroy some of the investments and scare potential investorsâ€.
â€œSome of the investors and the banks that funded their transactions had their fingers burnt. The same government that owes a company since 2013, has sacked the board of the same company for owing the government. In other countries, government offers grants to revive ailing private investments but Nigerian government withdraws life-lines of thriving private investments to collapse them and create unemployment,â€ he said.
He called on Prof. James Momoh-led NERC to rescind this unpopular decision.