Ijeoma Nwogwugwu: Seismic shift in Nigeria’s electricity sector

by Ijeoma Nwogwugwu

Power Reform

That Interstate has gotten this far in the process should be blamed on Vice-President Namadi Sambo who has chairman of NCP kept bending the rules for his friend Mr. Offor. During the technical evaluation of the bids, Interstate was allowed to sail through even though it failed to pass the evaluation criteria.

Penultimate week, a few of us inside and outside government, including my managing director, Eniola Bello, whom I had always considered a passive bystander, went into overdrive. We were concerned that a group of investors who had won the bids to acquire the 15 electricity utilities created from the unbundling of the Power Holding Company of Nigeria (PHCN) were about to derail the power reform process.

Under the auspices of the Roundtable of Distribution Companies, otherwise known as Disco Roundtable, they were seeking for an extension of the deadline prescribed by the National Council on Privatisation (NCP) to pay 75 per cent of the purchase price for the electricity utilities. Headed by Dr. Ransome Owan, the pioneer chairman/chief executive of the Nigerian Electricity Regulatory Commission (NERC), who was relieved of his job by the Umaru Yar’Adua administration, they met with the gullible Minister of Power, Prof. Chinedu Nebo, and lined up a series of conditions which they said must be met before they paid up the outstanding purchase price for the assets.

This is not to suggest that their demands were not genuine and that all of the Transition Electricity Market (TEM) arrangements had been put in place. Or that their lenders did not require some comfort from the NCP and Bureau of Public Enterprises (BPE) before parting with depositors funds for the acquisition of the assets. However, of major concern was that if the bidders were allowed to get their way or had the government bowed to their demands, all that the proponents of the power reform programme had worked assiduously to accomplish for more than a decade, would have gone up in smoke.

Seeing that the programme was teetering on the brink, this newspaper worked the phones last weekend to ascertain the level of compliance of the bidders and their preparedness to pay 75 per cent of the purchase price to the BPE on or before Wednesday, August 21. What we discovered was that contrary to impression created by Owan and his co-travellers that most of the bidders and their lenders were unwilling or unable to comply with the payment deadline, they were more than prepared to meet their contractual obligations under the Share Sale Agreement that the bidders had entered into with the BPE on February 21, 2013. It was a major discovery that this newspaper had to sustain throughout last week by keeping a tab on the bidders, the BPE and NCP, and keeping readers and the public abreast of the issues as they unfolded.

Let no one be in doubt: That 13 and half out of 15 bidders were able to raise and pay hundreds of millions of dollars to the privatisation agency, being 75 per cent of the transaction value for the electricity assets, on or before August 21, was no small feat at all. Many doubting Thomases, including the World Bank and a few other multilateral donor institutions, were skeptical over BPE’s ability to pull off the power privatisation process. They even tried to caution the BPE against its privatisation strategy on the premise that the Nigerian financial system lacked the depth to support and finance the acquisitions. Obviously, what they did not bank on was Nigeria’s ability to throw up surprises when it mattered most.

Besides, never in the history of Nigeria’s privatisation programme has the federal government generated so much as privatisation proceeds in one fell swoop. Indeed, an estimated $1.957 billion was paid into the coffers of the federal government via the BPE between Monday and Wednesday last week. If 25 per cent of the transaction value, which was paid six months ago by the bidders, is added, a total of $2.733 billion would have been generated by government. But much of the proceeds will be utilised to settle outstanding obligations to PHCN workers and invested in the transmission grid.
But a lot still needs to be done by NERC and BPE to give the investors the confidence that their investments are secure, chief of which is the Transition Electricity Market arrangements that must be in place before the transfer of the distribution and generation companies to the purchasers. These include but is not limited to the completion of the vesting contracts by the BPE; setting up of a System Operator and Market Operator, as well as their ancillary systems and processes; and the dispute resolution mechanism to resolve disputes that may arise between market participants, namely the System Operator, Market Operator and the transmission service provider, and licensed distribution and generation companies.

Without doubt, a seismic shift has occurred in the Nigerian Electricity Supply Industry (NESI) that will be impossible to reverse. As Chairman of the NCP Technical Committee Atedo Peterside put it last week, the centre of gravity in the power sector has shifted from the government to the private sector. Putting his comment in perspective, what Peterside meant was that the management and operations of the power sector have transited from an inefficient, corrupt public sector to a much more nimble, profit-driven private sector.

What this further means is that the investors and banks, which have taken a risk by taking a stake in the electricity supply industry, will not stand idly by and watch the transition market arrangements for the industry remain unimplemented by NERC and BPE. Neither will they watch their investments go down the drain just because the Achilles heel of the electricity supply industry – the transmission grid, which is still under the control of the federal government – is still subjected to political interference.

As the electricity supply industry evolves, this column is supremely confident that the investors who have borrowed extensively will come out kicking and screaming to force the hand of the federal government to meet its own end of the bargain. This is the singular reason this writer heaved a massive sigh of relief when all the bidders, save for one (see article below) met the payment deadline on Wednesday last week.

Credit must be given to President Goodluck Jonathan, NCP, BPE and NERC for staying the course as far as the power sector reform and privatisation programme is concerned. They have collectively pulled off the unexpected and proved the naysayers wrong. A few years from now, electricity consumers and the Nigerian economy as a whole will be the better for it.
•An article on the transmission grid in the emerging electricity market will be written in the coming weeks

 

 

Bending the Rules for Interstate

The Bureau of Public Enterprises (BPE) is courting trouble. It has made a recommendation to the National Council on Privatisation (NCP) to extend the payment deadline by 20 days for Interstate Electric Limited, the sole bidder that failed to pay a farthing last Wednesday for the 15 distribution and generations companies being privatised by the federal government. Interstate had been selected by NCP early this year as the preferred bidder for Enugu Distribution Company (Enugu Disco).

Two others – CMAC/Eurafric Energy Limited and North-South Power Limited, which had won the respective bids for Sapale and Shiroro power stations, at least paid a substantial part of the outstanding transaction value for assets. As a demonstration of their seriousness to conclude the transactions, it was understood that the lenders of CMAC/Eurafic and North-South Power kept calling BPE frantically after the 5 pm deadline on Wednesday seeking its permission to wire the balance to complete the payments on behalf of their customers. It is expected that the request made by the lenders of CMAC/Eurafric and North-South Power shall not be unreasonably withheld or turned down by the BPE.

However, it is worrisome that the BPE is even contemplating bending the rules by extending the deadline for Interstate Electric, a consortium promoted by businessman, government contractor and a major contributor to the ruling Peoples Democratic Party (PDP), Emeka Offor. It is one of the primary reasons BPE and NCP are yet to issue an official statement on the sums paid by other successful bidders who met the payment deadline.

Although it must be acknowledged that the Request for Proposals (RFP) issued by BPE for the power privatisation process includes a clause that allows the privatisation agency to give an extra 20 days to a defaulting bidder, nonetheless, that extension can only be granted if the bidder shows incontrovertible evidence that it has the capacity to pay for the asset. The bidder must also have notified the BPE of its concerns (if any) and asked for the extension well ahead of the payment deadline, not one day before it expired, as was the case with Interstate.

So far, all that Mr. Offor presented to the BPE was a term sheet from Afrexim Bank that simply defined the terms of the loan that the bank may or may not extend to Interstate. It must be noted that a term sheet simply serves as a template; it is most certainly not a binding document, and does not signify a firm commitment or offer on the part of Afrexim to finance the transaction.
That Interstate has gotten this far in the process should be blamed on Vice-President Namadi Sambo who has chairman of NCP kept bending the rules for his friend Mr. Offor. During the technical evaluation of the bids, Interstate was allowed to sail through even though it failed to pass the evaluation criteria. Also, when the bids for the distribution assets were evaluated by NERC on the basis of the highest Aggregate Technical, Commercial and Collection (ATC&C) loss reduction projections over the first five years of operations, Interstate was allowed to pass the test after a decimal point was shifted by someone who wanted Mr. Offor’s company to acquire the Enugu Disco by whatever means necessary.

Well, the rules can no longer be circumvented for Mr. Offor and Interstate indefinitely. He has clearly shown that he had no business participating in the power privatisation programme in the first place and should have been chucked out a long time ago. If he has to lose 25 per cent of the transaction value and bid bond that he deposited six months ago, as provided by the rules, so be it.

The BPE should be mindful that a former military head of state, General Abdulsalami Abubakar, as chairman of Integrated Energy Distribution and Marketing Limited, the company that won the bids for Yola and Ibadan Discos, stuck to the rules and never used his position to influence the outcome of the privatisation process.

Similarly, multibillionaire businessmen such as Aliko Dangote were shown the door when they failed to submit their technical and financial proposals a few minutes after the submission deadline. Perhaps, we should remind ourselves of what happened to another multibillionaire entrepreneur Mike Adenuga in 2001 when he was forced to forfeit $20 million for failing to meet the payment deadline for the digital mobile licences that were auctioned by the Nigerian Communications Commission (NCC) at the time.

If all these people with demonstrable track records in commerce and industry have been forced to stick to the rules, Mr. Offor should not be treated differently. Accordingly, the reserve bidder Eastern Electric Nigerian Limited, which has been waiting in the wings, should be invited to acquire the Enugu Disco.

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Read this article in the ThisDay Newspapers

 

Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.

Comments (2)

  1. Last week report only ferment conspiracy not to allow Geoelectric to acquire any of these assets Enugu and Abia power generators

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