Before the end of this year, it is expected that the Federal Government would have completed the privatisation and handover of the 11 electricity distribution and six generation companies carved out of the Power Holding Company of Nigeria (PHCN, to the entrepreneurs who bought them. EMEKA UGWUANYI Assistant Editor (Energy) examines the hurdles before these investors.
Background
The fundamental objective of the power sector reform and privatisation of firms unbundled from the government-owned and run Power Holding Company of Nigeria (PHCN) is to provide stable electricity to Nigerians. However, current indices and extant environment don’t show signs of attaining this aspiration in the near future.
The Federal Government proposed handing over these power generation and distribution assets to the investors before end of June but the date doesn’t seem feasible considering some hurdles, which needed to be crossed. These snags range from sourcing of funds by the investors and payment for these assets to settling labour issues and finding skilled manpower that would manage, maintain and sustain these assets post-handover. Besides, there would also be the need to change the attitude of some electricity consumers to bill settlement.
Creating the right environment and attitudinal change in consumers are imperative for sustenance of business. For instance, between August last year, when Prof. Barth Nnaji resigned as the Minister of Power to February, this year, when his successor Prof. Chinedu Nebo was appointed, power generation dropped from an average of 4220 megawatts (MW) to about 3100MW. Industry experts said it is only in Nigeria that such substantial percentage of decrease can occur without major natural disaster such as earthquakes and storms. But the government simply explained that the drop was caused by inadequate supply of gas to power plants.
Dearth of funds
Despite the adequate time the Bureau of Public Enterprises (BPE) and the National Council on Privatisation (NCP) gave the investors to get all the information they required concerning the assets they submitted bids for as well as the ample time given the investors to seek for funds to pay 25 per cent of offers they made, it was almost impossible for some of the preferred bidders to pay. Three of the investors paid on the last day, which was the deadline to make such payments.
Out of the 17 generation and distribution companies, 15 assets have currently been sold to 14 investors and out of the 14 investors, only 11 were able to pay the 25 per cent value of the offers they made before the closing date. The remaining three investors paid a few hours to the deadline.
The BPE said that all the preferred bidders for the 15 PHCN successor companies have met the deadline for the payment of the mandatory 25 per cent of the offer value of their bids, adding that as at March 21, 2013 deadline, it had received $559,445,573.96 from 14 bidders for the 15 successor companies.
The BPE also noted that 4Power Consortium, the preferred bidder for Port-Harcourt Distribution Company; Interstate Electrics Limited, the preferred bidder for Enugu Distribution Company; and North-South Power Company, the preferred bidder for Shiroro Power Plc are the three consortia that didn’t pay till the last day.
If it was that challenging to obtain fund for 25 per cent offer value of their bids, it may be extremely challenging or impossible to get funds to pay for the remaining 75 percent of the offer value of their bids, which is a condition for handover of the assets to them (investors).
Although it is very unlikely that the government will stick to the June handover date, most of the investors according to industry sources may find it pretty difficult to raise the remaining 75 per cent even by end of the year. The sources are of the view that the local banks may not have the muscle to provide such funds and seeking offshore loans are often difficult except for well known organisations or those that have structures, that may get the confidence of the banks, they added.
Labour issues
Labour issues constitute another obstacle the investors may contend with. The Federal Government has not concluded talks with the electricity workers’ unions and until consensus is reached on this issue between the government and the labour, investors may not have access to the assets they bought even when they have fully paid.
At present, the PHCN workers’ severance entitlements and the offer made by the Federal Government have been harmonised but the officials of the electricity workers’ unions are making the discussion difficult as the union leaders’ demand of N700 billion severance packages is described by the government and any right-thinking-person as outrageous and unfeasible.
A source at the power ministry, however, said the PHCN staff members are working with the government to ensure that the severance package arrangement is cordially executed to ensure that the investors don’t encounter hitches when they take over the assets. The source said the hitch the government has in the discussion on severance package is hinged on the demand of professional unionists who don’t want a change in the power industry and not on the genuine PHCN workers.
The total proceeds that will accrue from sale of the 15 PHCN assets already marketed by BPE are $2.237 billion and only $559,445,573.96 has been received. It is on the proceeds from the sold assets that government plans to pay the PHCN workers their entitlements and until the workers’ benefits are paid in full, the government will not hand over the assets to the investors.
The source said that immediately the government concludes discussion of benefits with PHCN workers’ unions, it will start payment of the severance benefits with the N50 billion it currently has but would conclude payment of N384 billion it offered with receipts from the investors.
The General Secretary of the National Union of Electricity Employees (NUEE), Comrade Joe Ajaero, has directed the electricity workers not to allow the investors’ access to the PHCN assets until full payments are made and all labours issues are addressed.
Manpower challenge
The major challenge the investors may face post-handover of the assets include dearth of skilled manpower to manage the assets. Although during the bid period, the investors showcased attractive technical competence based on what their foreign partners did in their home countries, it may not be easy to effectively run these assets as they investors thought. Except some companies such as the Vigeo Consortium, which has local experience. Considering the challenge in the area of age of some of these facilities, which ought to have been out service years back, the investors need to court the current technical team that manage the assets to continue until the equipment attain reasonable integrity. Otherwise, a hasty sack of the current PHCN technical team may result in collapse of the power industry.
Conclusion
The investors should be prepared for these challenges. The 15 assets currently sold and the preferred bidders include Vigeo Consortium, Benin Distribution Company ($32.25million); Transcorp/Woodrock Consortium, Ughelli Power Plc ($75 million); CMEC/EUAFRIC Energy JV, Sapele Power Plc ($50,249,965); Kann Consortium, Abuja Distribution Company ($41 million); Aura Energy, Jos Distribution Company ($20,464,968.15); Mainstream Energy Limited, Kainji Power Plc ($59,467,500); and Sahelian Power SPV, Kano Distribution Company ($34.25million).
Other are Amperion Power Company Limited, Geregu Power Plc ($33 million); Integrated Energy Distribution & Marketing Company, Ibadan and Yola Distribution Companies ($42.25 million and $14.75 million ) respectively; NEDC/KEPCO, Ikeja Distribution Company ($32.75 million); and West Power & Gas, Eko Distribution Company ($33.75 million); 4Power Consortium, Port-Harcourt Distribution Company ($31million); Interstate Electrics Limited for Enugu Distribution Company ($31.5 million); and Northsouth Power Company, Shiroro Power Plc ($27,913,633.50).
