• 11 distribution firms declared technically insolvent
• Review power sale but don’t politicise exercise —ECAN
The Federal Government is considering repossession of 10
electricity distribution firms as one of the options to rescue the
nation’s beleaguered electricity industry.
This is coming ahead of the scheduled final performance review
of the private firms that bought into the distribution companies
carved out from the defunct Power Holding Company of Nigeria.
However, document available to one of our correspondents shows
that the Federal Government would require up to $2.4bn (N736bn) to
repossess the privatised distribution assets from the core
investors if it finally takes the decision.
Giving clue that it could recover the assets from the core
investors, the Ministry of Power, Works and Housing in a document
sighted by one of our correspondents has described the co-owners of
the distribution companies as ‘failed investors.’
The distribution and generation companies carved out of the
defunct Power Holding Company of Nigeria were handed over to
private investors on November 1, 2013, following the privatisation
of the power sector by the President Goodluck Jonathan
administration.
The Transmission Company of Nigeria, which is responsible for
electricity transmission, is still fully owned and operated by the
government.
The PUNCH had on Friday reported that 17 of the nation’s 27
power stations had been forced to shut down some of their units on
the back of low demand by Discos, worsening the blackout being
experienced by millions of customers across the country.
11 Discos declared technically insolvent
Total power generation dropped to 3,264.4 megawatts as of 6am on
Monday, August 12 from 3,580.5MW on Sunday. It stood at 2,842.1MW
as of 6am last Thursday.
Five and a half years after privatisation, the 11 Discos have
been described as ‘technically insolvent.’
The ministry, in its new ‘Power Sector Policy Directives and
Timelines,’ said there was an urgent need to recapitalise the
Discos.
It described the inability of the Discos to improve customer
service and meet operational costs as a direct consequence of their
inability to raise capital.
The Bureau of Public Enterprises said in October 2018 that the
five-year performance agreement with the core investors in the
Discos, with the exception of Kaduna Disco, became effective on
January 1, 2015 and the fifth anniversary for final performance
review would therefore be December 31, 2019.
READ ALSO: Senate frowns on bailout funds for power sector
The ministry said the Discos’ accumulated debts to the Nigeria
Bulk Electricity Trading Plc and the Market Operator had made them
technically insolvent.
On the option of repossessing the distribution assets, it said,
“To do so within the provisions of the Share Sale Agreement will
require a sum in the region of $2.4bn, some of which will be paid
as compensation to the failed investors. This is not a desirable
outcome. It is noteworthy that government is yet to pay the
investor in Yola Disco for its negotiated return to
government.”
On July 2015, the Federal Government took over Yola Electricity
Distribution Company following the exit of the core investor after
it declared a force majeure, citing insecurity in the North-East
geopolitical zone of the country.
While highlighting the reasons for the inability of the Discos
to raise the capital required, the ministry said new lenders would
require additional equity injection.
“But any new equity investor would require clarity about how the
accumulated debts would be treated, and what support, possibly in
the form of subsidy, regulatory assets and or higher tariff, would
be available to manage new operating shortfalls during a transition
period,” it added.
Review power sale but don’t politicise exercise
—ECAN
The President, Electricity Consumers Association of Nigeria, Mr
Chijioke James, told one of our correspondents in a telephone
interview that there was a need to revive the power sector.
He said, “It is a welcome development that by December, there
will be a review to know how the core investors who took over the
power assets have performed. It is based on that feedback mechanism
that the government can make an informed decision, which should not
be political because the power sector is a very strategic sector
for the economy of our country.
“Therefore, in taking any decision, they should have the overall
national interest at heart, and not make the same mistakes made in
the past. We will love to see a situation where things are done
based on merit.
“The Discos that are doing well should be supported and
encouraged to do more; those who have failed should be shown the
way out.”
Cancelling Discos sale’ll come with contigent liability
—TCN MD
Although the Managing Director of TCN, Mr Usman Mohammed, had
consistently called for recapitalisation of the distribution
companies, he said that cancelling the sale of the Discos was not
in the best interest of the nation.
Mohammed had stressed the need for the recapitalisation of the
Discos, saying the transmission company would support any
initiative aimed at expanding the distribution network.
He said in an interview, “If you implemented right things
wrongly, you should right the wrong instead of cancelling it.
Because when you cancel it, you get it wrong completely. What we
need is to correct it, and recapitalisation can correct it.
“If we cancel the privatisation, we are going to have a
contingent liability and we will send a signal to the whole world
that Nigeria is not private sector-friendly.
“Secondly, does government have sustainable money to invest in
the power sector? No. When you cancel, you will return the money of
the investors and you are going to pay them 20 per cent for five
years.”
Speaking at the opening of the 23rd Nigeria Economic Summit in
Abuja on October 10, 2017, the Chairman of Heirs Holding, Mr Tony
Elemelu, had asked the government to dilute the shares of the
private investors in the power companies.
Elumelu, a major shareholder in Transcorp Power Consortium,
advised the government to invest more in the privatised power firms
to wrest them from current operators.
Subsequently, he said, the government could give the Discos to
investors who have the resource to run the distribution
companies.
Although the government acknowledged at a point that it was
considering this option, no concrete action had been seen along
this line.
In March, the National Leader of the All Progressives Congress,
Bola Tinubu, called on the Federal Government to revisit the
privatisation of the sector.
He accused the People’s Democratic Party administration of
sharing out the power assets to friends and cronies without very
deep and thoughtful research and evaluation.
Acting on behalf of the Federal Government, the BPE had in its
power sector reform programme overseen the sale of 15 power
companies — 10 distribution companies and five generation companies
— in 2013.
While $1.26bn was realised from the sale of the 10 distribution
companies, $1.06bn was realised from the sale of the five
generation companies.
The successful opening of financial bids for 15 successor
companies towards the end of 2012 opened the gates for the
financial inflows into the country in terms of privatisation
proceeds.
For Abuja Distribution Company, Kann Consortium emerged as the
preferred bidder; for Benin Disco, Vigeo Power Consortium and for
Eko Disco, West Power and Gas.
For Enugu Disco, Interstate Electrics Limited emerged while for
Ibadan Disco, Integrated Energy Distribution and Marketing Limited
had emerged.
EDC/KEPCO Consortium emerged the preferred bidder for Ikeja
Disco; Aura Energy Limited for Jos Disco; Sahelian Power Limited
for Kano Disco; 4Power Consortium for Port Harcourt Disco; while
Integrated Energy Distribution and Marketing Limited emerged for
Yola Disco.
For the power generation companies, North-South Power Limited
emerged for Shiroro Hydro Power Plc; Mainstream Energy Solutions
emerged for Kainji Hydro Power Plc.
CMEC/EURAFRIC Energy Limited emerged for Sapele Power Plc;
Amperion Power Distribution Limited emerged for Geregu Power Plc;
while the Transcorp Consortium emerged for Ughelli Power Plc:
Two consortia also later emerged preferred bidders for the last
of the two successor electricity companies from the Power Holding
Company of Nigeria — Afam Power Plc and Kaduna Electricity
Distribution Company.
With a bid of $260.05m, Taleveras beat TES Power to emerge the
preferred bidder for Afam Power Plc, the last of the generating
companies carved out from the defunct PHCN.
Similarly, Northwest Power Limited emerged the preferred bidder
for Kaduna Electricity Distribution Company, the only remaining of
the 11 distribution companies carved out from PHCN.
However, the sale of Afam to Televeras later felled apart.
The government is now in the process of reselling the GENCO
alongside Yola Disco whose former core investor declared force
majeure leading to repossession by the Federal Government.
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