{"id":9046,"date":"2013-08-26T11:39:52","date_gmt":"2013-08-26T11:39:52","guid":{"rendered":"http:\/\/disnaija.com\/nigerian-newspapers\/have-we-crossed-the-rubicon\/"},"modified":"2013-08-26T11:39:52","modified_gmt":"2013-08-26T11:39:52","slug":"have-we-crossed-the-rubicon","status":"publish","type":"post","link":"https:\/\/disnaija.com\/have-we-crossed-the-rubicon\/","title":{"rendered":"Have we crossed the Rubicon?"},"content":{"rendered":"
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Contrary to the gloomy picture initially painted by the Roundtable of Distribution Companies (the Disco Roundtable) 13 of the 15 preferred bidders for the distribution (Discos) and Generation (Gencos) companies finally met the deadline for the payment of the balance of 75 per cent of their bid price for the unbundled PHCN companies thus raising the hope of a light at the end of the tunnel after all<\/strong><\/em><\/span><\/p>\n

It initially looked like an exercise that was destined to hit the rock. Few days before the expiration of the August 21 deadline issued by the Bureau of Public Enterprises to the preferred bidders of the 15 Distribution and Generation Companies to pay up the remaining 75 per cent bid price, the 10 Distribution Companies (DISCOs) raised the alarm that it would not be able to meet the deadline and asked the government for a one month extension.<\/p>\n

The DISCOs had sounded it loud and clear that they would not pay the outstanding balance of 75 per cent of the bid price on the August 21 deadline unless and until the Federal Government settles all liabilities due to the employees of Power Holding Company of Nigeria, PHCN and fulfi ll all other conditions precedent in the privatization agreement.<\/p>\n

Led by former Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Ransome Owan, the Discos had told the Minister of Power, Prof. Chinedu Nebo that one of the conditions precedent for the conclusion of the privatisation was that the DISCOs would be handed over free from all legacy liabilities.\u201cOur lenders are mindful of this and are reluctant to approve loans and condition drawdown until all conditions are met. Therefore, it is vital for full payment obligations to the current PHCN employees be fi nalised by the long stop date of 21 August, 2013. Lenders expect evidence of these payments before we can draw down on funds to complete our payments,\u201d he said.<\/p>\n

Owan had raised a plethora of issues which the DISCOs had wanted the government to address, including the conclusion of all labour issues; release subsidy fund contained in the Multi-Year Tariff Order (MYTO) model for each of the distribution companies; fund the Transmission Company of Nigeria (TCN) adequately; issue an extended fi ve to 10 years special tax holiday for electricity distribution akin to the telecoms start-up assistance to mitigate tariff increase and high cost; and extend the longstop date to September 21, 2013 to allow for the full satisfaction of all conditions by government.<\/p>\n

Dr. Owan had insisted that lenders are reluctant to approve loans and condition drawdown until they see the evidences that all outstanding payments, particularly to the union before they can draw down on funds to complete the payments.<\/p>\n

With the long list of conditions, many had envisaged that the privatisation of the power sector which is nearing conclusion may eventually run into a hitch, especially as the Federal Government on its own insisted that the date for the payment would not be shifted, not minding the issues raised by the DISCOs.<\/p>\n

However, in what appeared to be more like a volte face, the same DISCOs that Owan had led to Nebo to ask for extension ultimately met the payment deadline as at the close of business last Wednesday, August 21, leaving only two in the lurch.<\/p>\n

Interstate Electrics Consortium, whose members include Emeka Offor\u2019s Chrome Energy, Power House International Limited and Metropolitan Electricity Authority of Thailand, the preferred bidder for Enugu Distribution Company, was unable to pay the balance before the expiration of the deadline, while North South Power bidding for Sapele power station made a part payment.<\/p>\n

Those that met the deadline included West Power and Gas, Integrated Energy Distribution and Marketing Company; Amperion Power Company Limited; NEDC\/KEPCO, the preferred bidder for Ikeja Distribution Company; Vigeo Consortium, for Benin Distribution Company; 4 Power Consortium for Port Harcourt Distribution Company; Aura Energy for Jos Distribution Company; Kann Consortium for Abuja Distribution Company and Sahelian Power for Kano Distribution Company.<\/p>\n

Others are Tony Elumelu\u2019s Transcorp\/Woodrock Consortium, the preferred bidder for Ughelli Power Plc; Mainstream Energy Ltd, the preferred bidder for Kainji Power Plc; Amperion for Geregu, KEPCO for Egbin and CMEC\/ EUAFRIC Energy JV, which made part-payments for the acquisition of Sapele Power Plc, have met the deadline.<\/p>\n

Under the privatization programme, any of the preferred bidders that fail to meet the deadline would forfeit its initial 25 per cent payment while the company would be offered to the reserved bidder. : \u201cAny bidder that failed to meet his obligation will lose the slot for that company, and we will hand it over to the reserved bidder,\u201d said Atedo Peterside, Chairman, Technical Committee of the National Council on Privatisation.<\/p>\n

So, as it stands, if the Bureau of Public Enterprises (BPE) were to follow strictly the terms of the scheme as it is expected to, Interstate Electrics Consortium would lose the bid to Eastern Electric Company, which has already declared its preparedness to pay $ 126 million for the takeover of the company.<\/p>\n

Eastern Electric Company is a consortium formed by the fi ve South-east state governments; Nestoil, a major indigenous operator in the upstream sector of the petroleum industry; Aba Power Ltd and Geometric Power Ltd, led by former Power Minister Bart Nnaji and Diamond Bank\u2019s founding chairman Pascal Dozie, among others.<\/p>\n

The company, in a statement by its communication<\/p>\n

consultant, Don Adinuba said it has a robust and matchless combination of global best practices and the best experience of emerging economies. \u201cWe shall not have diffi culty raising the funds. The Bureau of Public Enterprises is still holding on to our $ 10m bank bond raised when we were bidding for the Enugu Disco. As all Nigerians must have known, the 141MW Aba integrated power project built by Geometric Power and which cost over $ 450 million is about to be commissioned,\u201d the statement said.<\/p>\n

Other members of the Eastern Electric Company Company include NRECA of the United States which operates in Latin America, Pakistan, Sudan, Bangladesh and controls 10 per cent of the United States one million Megawatt grid amounting to some 100,000MW, and the NETGroup of South Africa which operated Tanzanian power and maintains a signifi cant presence in South Africa\u2019s electricity business.<\/p>\n

\u201cWe have a robust and matchless combination of global best practices and the best experience of emerging economies.<\/p>\n

Analysts have equally said that the failure of Interstate Electrics to pay for the Enugu Electricity Distribution Company, may have even foreclosed the legal tussle between it and Nnaji\u2019s Geometric Power over Aba and Ariaria Market Business Units of the Power Holding Company, PHCN.<\/p>\n

Geometric Power Ltd had sued the BPE over Interstate\u2019s claim and Interstate requested to be in the suit as an interested party. Geometric had insisted that the two business units are excluded from the Enugu Distribution Company based on its 2005 agreement with the Federal Government and amended in 2006.<\/p>\n

With the payment, the bidders are expected to take full control of the various companies and commence the implementation of their various turnaround initiatives that are expected to engender a new phase in the troubled power sector.<\/p>\n

Already, Prof. Nebo, in a statement had stated that the completion of payments entitled the bid winners to fully take over the power fi rms. Nebo described the privatization as a great milestone in the Power Sector Reform Roadmap that should give hope to Nigerians and inspire confi dence in government\u2019s power reform programme and President Goodluck Jonathan\u2019s Transformation Agenda.<\/p>\n

The minister said he would soon formally declare the Transition Electricity Market, TEM, to enable the investors commence business in earnest and further drive the process.<\/p>\n

Nebo also reassured all Nigerians and investors of government\u2019s resolve to pursue the transformation agenda to the end and monitor the emerging transition market in order to protect the interest of the citizenry and the investors.<\/p>\n

He said the stability of the national grid was being enhanced to ensure effective transmission of any quantity of power being generated in the new dispensation, adding that efforts were also being made to provide more electricity off-grid, especially for the rural areas, while also sustaining subsidy for low income electricity consumers.<\/p>\n

So far, Business Courage learnt that the Federal Government may have raked in about $ 2.238 billion or N358.045 billion, an equivalent of 7.18 per cent of the 2013 budget of N4.987 trillion, thus making the exercise the biggest privatisation sales ever in the history of Nigeria and Africa.<\/p>\n

The sum is derived from the $ 559.44 million already paid by the 14 bidders as 25 per cent of the total cost of their bids for the respective DISCOs and GENCOs unbundled from PHCN and the balance of 75 per cent paid by 14 of the bidders.<\/p>\n

However, how well the remaining part of the process would go, will to a large extent determine whether Nigeria\u2019s has indeed crossed the Rubicon.<\/p>\n

At the stakeholders meeting led by Dr. Owan, the new owners had raised some issues which industry analysts say need to be addressed to fully enjoy the benefi t expected from the exercise.<\/p>\n

These include the Transition Electricity Market, TEM, which they said would herald the start of contractual arrangements in the power sector and the automation of billing and metering operations of the market operator in line with market rules.<\/p>\n

The investors had also noted that conditions precedent that were yet to be fulfi lled include the completion of metering of the grid interface points; testing of the market operators settlement systems and processes and constitution of dispute resolution panel without which the Nigerian Electricity Regulatory Commission, NERC, could not advise the Minister of Power to declare the start of TEM.<\/p>\n

They had also pointed out that industry agreements, including power purchase agreements, vesting contracts and transmission network agreements, which underpinned industry revenue, would be deemed illegal and a nullity until the declaration was made by the minister.<\/p>\n

Of serious concern was the issue of revenues as the investors said DISCOs were operating at a loss and buyers would quickly deploy their respective turnaround plans, but a cost refl ective tariff, which guarantees regulated return and covers all industry payments, was not yet producing the desired results due to systemic and structural problems.<\/p>\n

This means that if the DISCOs were unable to cover the cost of the energy delivered by the bulk trader, the Transmission Company of Nigeria, TCN, and the generation companies, would be adversely affected. Thus calling for the release of the subsidy contained in the Multi-Year Tariff Order, MYTO, model for each DISCO.<\/p>\n

Other demands include adequate funding of the TCN to enable it to adequately evacuate power produced for DISCOs as well as the grant of fi ve to 10 years special tax holidays for electricity.<\/p>\n

Already, some analysts have punched holes in some of the demands, particularly as it has to do with the issue of subsidy or tax holiday for the investor.<\/p>\n

An industry expert who wished to remain anonymous told Business Courage at the weekend that the new owners were assumed to have done their homework before putting down their money, stressing that \u201cIf they were building new facilities on the prompting of the government, this could apply.\u201d<\/p>\n

He said that the electricity market is huge in Nigeria with all citizens underserved at the moment, stressing that they will make their money in no time with the right strategies and investments. \u201cFor me, the most important aspect of this milestone is the potential transformational effect on the economy. Availability of power will easily translate into lower cost for businesses and more job creation opportunities as Nigerian goods become more competitive in the local international market. It will reduce the billions spent on diesel and petrol for generators. Small business without capacity to absorb and spread costs will thrive,\u201d he said.<\/p>\n

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Posted in Nigerian Newspapers. <\/a>A DisNaija.Com<\/a> network.<\/p>\n

Source: National Mirror Newspaper<\/p>\n

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