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2013 Review: Private sector takes over Nigeria’s electricity market

By on December 30, 2013

The privatisation of the country’s power sector which commenced last year was consummated this year. Major hurdles along the process were dismantled, paving the way for the private sector to finally take over the worrying electricity market, Snr. Reporter, Obas Esiedesa reports.

The biggest event of 2013 in the power sector was the November 1, handover of ten electricity distribution and four generation companies to their new owners who had paid billions of naira for their assets in arguably, one of the largest divestment by a government in Africa from a public sector managed industry to the private sector.

The utilities were part of the successor companies of the former Power Holding Company of Nigeria (PHCN). This remarkable event which many had thought was not going to be possible given the huge challenge in the sector brought to an end a process which successive governments had conveniently shied away from.

Like the Minister of Power, Prof. Chinedu Nebo put it, even the naysayers were astonished by the success of the process.

Preparing for privatization

By late 2012 the process for the privatisation gathered pace and like everything Nigerian the route was fraught with land minds specifically planted by various interest groups in and out of government. And the first casualty was the then Minister of Power, Prof. Barth Nnaji whose electricity firm’s involvement in the process and subsequent battle with Vice President Namadi Sambo led to his resignation.

His departure eventually brought in Nebo who successfully mid-wifed the process but not until the greatest obstacle to government’s plan was removed in the shape of labour.

Nigerians are a unique people, more so, for those who are in the public sector. We generally want to be paid, happily by all means, whether we work to merit such payments or not. And for electricity workers who have been there for ages producing virtually nothing and yet going home monthly with their pay packet, transiting to a privately owned administered companies was not a thing to be envisaged. So, they fought the government till the last minute.

In 2012, President Goodluck Jonathan had approved a severance package of N382 billion for the workers but a paltry N45 billion was provided for that purpose in the 2013 budget. This meant that the shortfall of about N337 billion had to be sourced from the money realized for the sale of the companies.

Thus for the first time in the history of privatisation in the country, the workers literarily ate up the companies they worked for and thereby denying other Nigerians a share of the common patrimony.

The biggest challenge was determining how many the workers were in the first place, and to achieve this, government embarked on capturing the biometric data of PHCN staff nationwide. The workers resisted but government stood resolute and insisted that that was the only way of getting an accurate figure for workers who will eventually be settled.

A source at the Ministry of Power told Sunday Independent then that until the full details were completed payments would not begin noting that government was trying to avoid “half-hazard payments that would create more problems and truncate effort to fully privatize the PHCN successor companies”.

The source stressed that a committee comprising ministry’s officials, the Bureau for Public Enterprises (BPE) and representatives of the National Union of Electricity Employees (NUEE) had been set up to harmonize the list of beneficiaries.

“The BPE is heading the process and when they have concluded payments will start. The ministry is not playing the leading role but we are involved. It takes time to agree on all the issues but the committee is working very hard”, the source added.

The BPE acting Director-General, Benjamin Dikki had during the week explained that payments would be in three phases with the first set of employees receiving their package before the end of the month. According to him, others would be paid in April and May.

“We are finalising the individual benefit statements for each worker and each will verify the accuracy of the computation to ensure that there are no errors. After that, we will now go ahead and do the electronic remittance to their individual accounts. We are doing a thorough job and at the end everyone will be happy. We have done the biometric of the casual staff and that is being finalised. So, once we finish all this, it will just take a day to do the electronic transfer to their accounts”, he added.

But the workers were in sharp disagreement with the government and they threatened to shut power facilities across the country unless all outstanding labour issues were addressed within two weeks”.

According to a communiqué of resolutions adopted by the union in its National Executive Council (NEC) in Abuja the group had noted that government was bandying fictitious figures of staff terminal benefit in disregard of an inconclusive audit by an independent consulting firm, Alexander Forbes.

National Secretary of NUEE, Joe Ajaero told reporters then that “NEC-in-session condemns in strong terms government deceit and propaganda to break its rank by presenting fictitious figures as staff terminal benefit when the consultant engaged by the Federal Government is yet to submit its report and the technical committee constituted by government is yet to conclude its assignment in this regard.

“The NEC-in-session expressed worry and disappointment at the pace the Federal Government is misinforming the general public over payment of staff emoluments in the power sector thereby exposing our members to serious security threat”.

Ajaero added that the union condemned the “delay in completing the biometric reconciliation committee’s assignment which should have been concluded within two weeks of its inauguration. Consequently, the union demands that the committee winds up its activities for the regularisation of casuals by 15th of March 2013”.

After a protracted negotiation that led to shifting of the handover dates several times government eventually began paying the severance package by September. Even then labour issue reared its ugly head again on the eve of the handover with leadership of the unions threatening to abort the process due to non deduction of a percentage of the payments to the union’s account and the non resolution of biometric challenges at the Enugu centre which had affected over a thousand of their members.

A late meeting between both parties that lasted for eight hours eventually ended with an agreement that resolved that all outstanding issues involving the 40,698 workers that have already been cleared should be paid before November 15 while the other workers must receive their pay by the end of November.

Permanent Secretary in the Ministry of Power, Godknows Igali told reporters that the issues of retired PHCN workers who were yet to receive their pension is to get urgent attention with all the retirees expected to go through bio-metric capture.

They also agreed that in accordance with the December 2012 agreement, the right of the workers to own ten per cent of the privatized utilities would be respected.

According to the agreement, “the process of revalidation of all normally retired workers of PHCN would be completed by Friday, 15th November, 2013. However such workers shall remain in employment until all their benefits are paid.

“That the revalidation of all normally retired workers of PHCN should commence and be completed by November 30, 2013. All cases of underpayment will be addressed not later than November 30, 2013. The issue of 2500 outstanding un-cleared casuals be revisited and treated on compassionate grounds”.

 Paying for the assets and handover

The bidding process and eventual payments for the assets was conducted by the Bureau for Public Enterprises (BPE) who set timelines and established a system that ensured the process was largely rancor free. By March 21, successful bidders for 11 of the companies paid government a total sum of $469.032 million (N73.64 billion) which represented 25 per cent of the amount bided for their assets.

The winners were Vigeo Consortium which paid $32.25 million for Benin disco, Transcorp paid $75 million for Ughelli power plant, EUAFRIC paid $50.3 million for Sapele plant, Kann Consortium $41 million for Abuja disco, Aura Energy $20.5 million for Jos disco; Mainstream Energy Ltd, $59.5 million (N9.342 billion) for Kainji Power Plc, and Sahelian Power SPV $34.25 million (N5.378 billion) for Kano Distribution Company.

Other bidders that had earlier paid the 25 per cent of their bid value were Amperion Power Company Limited for Geregu Power Plc, $33 million; Integrated Energy $42.25 million for Ibadan disco and $14.75 million (N2.316 billion) for Yola disco; NEDC/KEPCO paid $32.75 million for Ikeja Disco and West Power & Gas paid $33.75 million for Eko Disco.

Later in May, government handed over the 25 per cent share certificates to the new owners. President Goodluck Jonathan, who superintended over the ceremony in Abuja during the Presidential Power Reform Transaction Signing Summit, insisted that the testimonies of those who participated in the privatisation process showed that the cry over corruption in the country is over exaggerated.

The certificates were handed over to companies which had paid 25 per cent of the bidding price for Shiroro, Kainji, Geregu, Sapele and Ughelli power plants.

Investors who had also paid 25 per cent of the price for Abuja, Ikeja, Jos, Eko, Port Harcourt, Benin, Enugu, Kano, Ibadan and Yola Distribution companies were given their certificates of payment.

The Canadian firm, Manitoba Hydro International was also formally given the schedule of Delegated Authority that transferred managerial control to it over the Transmission Company of Nigeria (TCN).

The event also saw the execution of the World Bank Partial Risk Guarantee (PRG) for the New York Branch of Deutsche Bank AG for gas supply to Egbin Power Plant, which provides security for gas supply by Chevron Nigeria Limited against payment default by the gas purchaser.

Also executed was the Sellers Representative Agreement between Nigeria National Petroleum Corporation (NNPC) and Exxon-Mobil for the supply of gas. The template, industry standard, and Power Purchase Agreement between the Nigeria Bulk Electricity Trader (NBET) and Azura Power for project financed IPP.

The new owners were expected to pay the remaining 75per cent by August 28 before the companies were handed over to them, a deadline which most of them met. With the agreement with labour in place all was set for that historic day when the investors took ownership of the assets.

The ceremony which took place simultaneously nationwide saw four power generation companies and ten electricity distribution companies of the Power Holding Company of Nigeria  handed over to the private sector who had in August paid about $3 billion (N480 billion) for the assets.

The generation companies that were handed over to their new owners are Ughelli Plant, Geregu I Plant, Kainji Hydro and Shiroro Hydro. The distribution companies are Ikeja, Eko, Ibadan, Jos, Kano, Yola, Abuja, Benin, Enugu and Port Harcourt.

Speaking at a ceremony to mark the handover of Abuja Distribution Company to KANN Consortium Utility, Nigeria’s Vice President and Chairman of the National Council on Privatization, Nnamadi Sambo noted that the day was historic as it was the biggest divestment of public utility in Africa.

Sambo who was represented by the Minister of Power, Chinedu Nebo, assured Nigerians that the reforms being implemented for the sector by the government would increase consumers’ access to electricity which will in turn stimulate economic growth.

According to him, “The participation of the private sector would bring about higher generation capacities through the provision of more efficient and cost effective power stations and improvements in electric power distribution, in the areas of billing and collection, and transmission networks.

“Such capital injection and efficiency have been inadequate in PHCN over the years, resulting in gross inadequate power supply with attendant negative effects on the citizenry and the economy at large. Today’s handover marks the concluding stage of the transaction for the four generation companies and ten distribution companies”, he added.

Sambo warned the new owners of the public utilities that government would sanction any of the investors who fail to deliver on the agreement reached with it, noting that government is determined to ensure that quality electricity gets to Nigerians.

Post Privatisation

The age-long decay in the sector and the critical role power plays in the social and economic development of any nation meant that government had to put mechanisms in place to ensure that the new owners especially those in the generation chain of the electricity market had enough incentives to plough more money into the sector.

Federal Government in early December placed N50 billion in escrow accounts of three selected Nigerian banks to support power generation companies.

The money which was part of the amount realized from the privatisation process would insure generating companies from any revenue loss in their effort at boosting electricity generation.

This is following from its earlier promise to provide such incentives to the new owners of the generation companies which had accordingly made payments for their assets on such basis; through the BPE and Nigerian Bulk Electricity Trading Company (NBET) Plc, the government thus signed an escrow agreement on power with three Nigerian banks in Abuja.

The participating banks are First City Monument Bank (FCMB) Plc which is the lead escrow agent, United Bank for Africa (UBA) and First Bank Plc. The accounts would be managed by the NBET.

Speaking to newsmen shortly after the signing of the agreement with the banks, Director General of BPE, Benjamin Dikki however explained that the fund is not an endowment to the gencos but was put in place as an incentive to the power plants owners to invest in expanding their capacity.

Commenting on the roles of the banks, he stated that the banks “are the custodians of the money which is deposited in them and we want to establish a process through which this money will be drawn and not just drawn frivolously, that is why the BPE, Bulk Trader and the banks signed the agreement to say that you have to follow a process to draw this money otherwise there will be penalties; the lead bank is FCMB which is the lead escrow agent, others are UBA and First Bank, the money is coming from the proceeds of the sale of PHCN successor companies”.

The BPE boss, however, clarified that the distribution companies were not covered by the fund, explaining that the discos had committed to reducing the Aggregate Technical Commercial and Collection (ATC&C) losses of the distribution companies.

But looking back at the entire process, Prof. Nebo told reporters shortly before Christmas that the transition from government dominated vertical ownership and running and transition to a private sector driven electricity market has been seamless.

He acknowledged that there “were teething problems even preceding the privatisation exercise. One of the most turbulent was the labour unions who felt that the principle of privatisation was not right for Nigeria and adduced all kinds of reasons to explain their view point. Some of the reasons they adduced were politically correct that in a 21st century global knowledge driven economy you couldn’t really say that those reasons hold water.

“After series of negotiations that took hundreds if not thousands of hours they were able to allow the process to continue to completion. Doomsayers had predicted that it would not happen, but November 1 has come and gone. The private sector is just bracing up to the challenges and the challenges are a myriad because the entire market is not totally solvent.

“The reasons are obvious, we have an incredible metering gap that was not fully addressed before the takeover, but they very well knew that these things were there. They were not hidden from them, they did their own due diligence and they were fully aware of every situation. But where you cannot really claim to have ownership of the finances of more than 50 per cent of the market client, it leaves a lot undone.

“But we are not crying over spilt milk we are trying to find ways to mitigate the consequences of this huge metering gap that was estimated to be up to 2.7 million. It’s not easy to fill that gap within a short time, it is something that will take time to procure and install and commission the meters. So, collection of tariff has not been easy, that’s one of the serious teething problems. People who are not using prepaid smart meters are being given estimated bill.

“Unfortunately another mistake was that the disco owners sacked many of the workers and some of these sacked workers were people who were very good at collecting the tariff. So you are taking over the company you don’t know where the money is and without full consideration you’ve eliminated the people who knows, granted that some of them might not be quite honest, but throwing the baby away with the bath water is not the best thing”, he added.

 

 

[Daily Independent]

One Comment

  1. Alex william

    January 3, 2014 at 10:17 am

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    where the output from all generators is aggregated and instantaneously
    scheduled to meet demand through a centrally-coordinated dispatch process. This process is operated by the Australian Energy Market Operator (AEMO) in accordance with the provisions of Australian National Electricity Law and Australian National Electricity Rules.

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