Publications

Extolling the Virtues of Adam Smith

F.O. Akinrele & Co. is retained for 2012-2013 as Country Legal Consultant to Adam Smith International with a mandate to deliver specialist legal support to ASI’s objectives of expanding access to infrastructure providers, Nigerian government ministries and regulatory authorities in all the key infrastructure sectors including telecoms, power & energy, water supply and sanitation and...

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Extolling the Virtues of Adam Smith

F.O. Akinrele & Co. is retained for 2012-2013 as Country Legal Consultant to Adam Smith International with a mandate to deliver specialist legal support to ASI’s objectives of expanding access to infrastructure providers, Nigerian government ministries and regulatory authorities in all the key infrastructure sectors including telecoms, power & energy, water supply and sanitation and transport (ports, road, rail and aviation).

Adam Smith’s philosophies of access to world markets through free trade between nations are exemplified by the ethos of Adam Smith International (ASI), founded in response to the growing international interest in practical advice on economic and government reform, now a leading independent governance and economic consultancy.
ASI’s Nigerian subsidiary, the Nigerian Infrastructure Advisory Facility (NIAF), has won the British Expertise Development Project of the Year Award in recognition of its outstanding success based on its NIAF programme, in providing increased access to improved, reliable and affordable infrastructure services in Nigeria.
F.O. Akinrele & Co’s on-going legal mandate in supporting the NIAF programme includes determining the scope for future private sector investment and how structural and regulatory reforms can be introduced to ensure that such investment results in pro-development outcomes. The specific areas in respect of which we provide legal support are as follows:

Infrastructure and utility sector policy

  • Strategies for attracting sustainable private sector investment
  • Selecting the most appropriate private sector participation (PSP) methodology
  • Utility and infrastructure sector restructuring and market reform
  • Creation and strengthening of regulatory frameworks and institutions

Nigeria, like much of sub-Saharan Africa is badly hindered by inadequate, outmoded or even non-existent infrastructure. Weak infrastructure diminishes the productivity of individuals and the capital they employ; it therefore eradicates the natural competitive advantages inherent within a country’s assets. It creates barriers to development by restricting opportunities and raising costs thus impeding the sustainable development of the economy and stifling innovation.

According to the World Bank Investment Climate survey, 2006, poor infrastructure is regarded as either a “major or severe obstacle to the operation and growth” of around 70% of business in sub-Saharan Africa. “Good infrastructure on the other hand is the foundation upon which sustainable economic development and the fight against poverty can take place. Making infrastructure development work for the poorest in society remains a critical challenge” – Adam Smith International.

Power Sector Privatisation Milestones

On Tuesday, September 25 2012, Nigeria named the successful bidders for five state power generation plants signifying a major step in the privatisation of the Nigerian energy sector since the 2010 announcement by President Goodluck Jonathan to break up the state power company and sell it off as 10 distribution companies and six generation companies....

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Power Sector Privatisation Milestones

On Tuesday, September 25 2012, Nigeria named the successful bidders for five state power generation plants signifying a major step in the privatisation of the Nigerian energy sector since the 2010 announcement by President Goodluck Jonathan to break up the state power company and sell it off as 10 distribution companies and six generation companies.

In a sector where Power outages hold back economic growth, the Nigerian Federal Government has made power reforms a priority part of plans to privatise the country’s electricity sector to boost growth. Despite holding the world’s seventh largest gas reserves, Nigeria, Africa’s second largest economy, only produces around 4,000 megawatts (MW) of electricity for its 160 million people, less than a tenth of the amount South Africa provides for a population a third of the size. Despite an estimated $40 billion of capital injected into reforming the power sector over the last two decades, capacity has only improved marginally. If Nigeria can fix its electricity problems it could launch Africa’s second largest economy into double-digit growth and help pull millions out of abject poverty.

Privatisation of Power Generation

The 5 successful bidders were:

  1. A consortium including a Nigerian Public Company Transcorp for the Ughelli Power Company, offering $300 million;
  2. Forte Oil for Geregu Power plant offering $132 million;
  3. A consortium made up of Nigerian, Chinese and British companies for the Sapele Power firm offering $201 million;
  4. Mainstream Energy, a group including the Russian firm RusHydro in collaboration with several Nigerian companies won a contract to manage the Kainji Power company;
  5. North-South Power, a mostly Nigerian consortium, won a similar contract on Shiroro Power.
    NB. Mainstream and North-South had no competitors for their bids.
  6. The sale of the remaining generation firm, which will run the Afam power plant, is being re-tendered after the Power Minister Barth Nnaji resigned last month when it was revealed he had a stake in one of the consortiums bidding for the asset.

Privatisation of Power Distribution
On Oct. 16 2012, a number of frontline bidders were announced as top contenders for the electricity distribution companies. Minister of State for Power, Darius Ishaku, said at a ceremony in Abuja announcing the top contenders, “This is a milestone in the power privatisation process”. But clear winners of the bids had yet to emerge, as the rules for the bidding employed by the Bureau of Public Enterprises prescribed that the bidders would still be subjected to further tests.

Equally, one of the bidding rules states that no company can be allowed to win more than two bids.
In addition, no company will be allowed to win both the Ikeja and Eko Electricity Distribution Companies, which collectively generate about 45 per cent of the total revenue of the Power Holding Company of Nigeria.
Based on the rules, the National Council on Privatisation, led by Vice-President Namadi Sambo, will still subject the top contenders to scrutiny before announcing the eventual winners.

The Chairman, Technical Committee, NCP, Mr. Atedo Peterside, said successful bidders were contractually bound to deliver on the Average Technical, Commercial and Collection (ATC&C) loss reduction levels they had submitted.
Peterside said, “the bidder offering the highest ATC&C loss reduction is in a leading position subject to the ground rules”. Further that “the regulator will not adjust tariffs upwards to accommodate the inability of a Distribution company operator to deliver on the ATC&C levels that they commit to; rather tariffs will be adjusted downward annually to reflect the agreed ATC&C loss levels irrespective of the operator’s ability to meet its contractual obligation.”

The Federal Government is looking to realise N197.25bn (approx. $1.25bn) at the end of the sale of the 10 companies, whose bids were opened on Tuesday. Instead of allowing the bidders to compete based on their financial strengths, they were evaluated based on ATC&C loss reduction proposals. The eventual winners will have to pay 60 per cent of the asset worth of the companies as determined earlier by the Nigerian Electricity Regulatory Commission (NERC).

A breakdown shows that N25.79bn (approx. $164m) will be realised from the sale of Abuja Electricity Distribution Company; N20.23bn (approx. $129m) from the Benin Electricity Distribution Company; N21.19bn (approx. $135m) from Eko Electricity Distribution Company; and N19.81bn (approx. $ 126m) from the Enugu Electricity Distribution Company. Others are N26.51bn (approx. $169m) from the Ibadan Electricity Distribution Company; N20.64bn (approx. $ 131m) from the Ikeja Electricity Distribution Company; N12.86bn (approx. $ 82m) from the Jos Electricity Distribution Company; N21.44bn (approx. $ 136m) from the Kano Electricity Distribution Company; N19.51bn ($ 124m) from the Port Harcourt Electricity Distribution Company; and N9.31bn ($ 59m) from the Yola Electricity Distribution Company.

1. ABUJA ELECTRICITY DISTRIBUTION COMPANY
At the opening of the bids on Tuesday 16th Oct. 2012, Interstate Electronics Limited being promoted Mr. Emeka Ofor emerged the top bidder for the Abuja Electricity Distribution Company by offering to reduce the ATC&C loss by 21.62 per cent.
The second bidder, Kann Consortium Utility Limited, offered to reduce the ATC&C loss by 18.43 per cent.

2. BENIN ELECTRICITY DISTRIBUTION COMPANY
For the Benin Electricity Distribution Company, Vigeo Power Consortium emerged the top contender with an offer to reduce the ATC&C loss by 21.78 per cent. The company is being promoted by Mr. Gbolade Osibodu.
The other contender for the Benin Electricity Distribution Company is Southern Electricity Distribution Company, which offered to reduce the ATC&C loss by 17.72 per cent.

3. EKO ELECTRICITY DISTRIBUTION COMPANY
For the Eko Electricity Distribution Company Limited, Integrated Energy Distribution and Marketing Limited emerged the top bidder by offering a loss reduction of 21.43 per cent.
Other bidders for Eko include New Electricity Distribution Company Consortium, 20.43 per cent; West Power & Gas, 18.55 per cent; Honeywell Energy Resources International Limited, 16.33 per cent; SEPCO-Pacific Energy Consortium, 15.7 per cent; and Oando Consortium, 14.29 per cent.

4. ENUGU ELECTRICITY DISTRIBUTION COMPANY
Interstate Electrics Limited emerged the top contender for the Enugu Electricity Distribution Company with an offer of 20.83 per cent ATC&C loss reduction, while Eastern Electric Nigeria Limited offered a reduction rate of 15.99 per cent.

5. IBADAN ELECTRICITY DISTRIBUTION COMPANY
Integrated Energy Distribution & Marketing Limited emerged as top contender for the Ibadan Electricity Distribution Company with an offer of 17.46 per cent loss reduction. Other contenders are New Electricity Distribution Company Consortium, 17.14 per cent; and Western Consortium 14.37 per cent.

6. IKEJA ELECTRICITY DISTRIBUTION COMPANY
Integrated Energy Distribution & Marketing Limited emerged top contender for the Ikeja Electricity Distribution Company with an offer of 21.51 per cent ATC&C loss reduction. Others bidders were New Electricity Distribution Company Consortium, 20.43 per cent; Vigeo Holdings, Gumco, African Corporation AFC & CESC Consortium, 19.27 per cent; Honeywell Energy Resources International Limited, 16.25 per cent; and Oando Consortium, 14.25 per cent.

7. JOS ELECTRICITY DISTRIBUTION COMPANY
Aura Energy Limited was the sole bidder for the Jos Electricity Distribution Company and was offered 16.22 per cent ATC&C loss reduction.

8. KANO ELECTRICITY COMPANY
Sahelian Power SPV Limited offered 21.21 per cent ATC&C loss reduction.

9. PORT HARCOURT ELECTRICITY DISTRIBUTION COMPANY
4Power Consortium offered 19.55 per cent ATC&C loss reduction.

10. YOLA ELECTRICITY DISTRIBUTION COMPANY
Integrated Energy Distribution & Marketing Limited offered 18.58 per cent ATC&C loss reduction.

Fuel Subsidy Initiatives II

The gasoline subsidy embodied the worst characteristics of the country’s economic governance. In 2011, the subsidy on gasoline cost the government over $9 billion, more than the entire federal government capital budget and about double the subsidy’s cost in 2010. The costs were exacerbated by rising interest charges and insurance premiums occasioned by payment delays....

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Fuel Subsidy Initiatives II

The gasoline subsidy embodied the worst characteristics of the country’s economic governance. In 2011, the subsidy on gasoline cost the government over $9 billion, more than the entire federal government capital budget and about double the subsidy’s cost in 2010. The costs were exacerbated by rising interest charges and insurance premiums occasioned by payment delays.

By the end of 2011, Nigeria owed importers over $4 billion, the government decided to end the subsidy.
The Coordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, has said the N888bn (approx. $ 5.6bn) allocated for subsidy payments in the 2012 budget should be enough to pay petroleum product importers. She told journalists in Tokyo, Japan, recently that the fund had not been exhausted and should be enough to pay the subsidy bills for this year.

The Federal Government has since tightened the payment system and is currently prosecuting some oil marketers for subsidy fraud. The government is also making efforts to revamp the nation’s comatose refineries with about $1.6bn set aside for their turnaround maintenance. The Federal Government has 445,000-barrel per day crude oil refining capacity but has been relying on petroleum product imports for domestic consumption and has, however, invited the original builders of the refineries in Port Harcourt, Warri and Kaduna to help revamp them.
Also, the Federal Government has earmarked N971bn (approx. $ 6.1bn) for petroleum subsidy in the 2013 budget estimates presented to the National Assembly by the President.

The government’s efforts, according to analysts, suggest that it may not completely remove fuel subsidy until it gets the local refineries working optimally. It is reported that meanwhile, the Federal Government is targeting raising the amount in the Excess Crude Account to $10bn between January and February, 2013. Further that the Finance ministry is anticipating that the fund would increase to $10bn, even if deductions had to be made from the account to pay for petroleum subsidy in 2012.

The country currently saves oil revenue above the benchmark budgeted price of $72 per barrel in the ECA.

The 36 state governors agreed in June to boost savings in the account to $10bn. Its balance in September 2012 was $8.4bn (N1.32tn), The nation’s foreign-exchange reserves have increased by 28 per cent this year to $42bn. The Nigerian benchmark Bonny Light crude has risen by 27 per cent from a June low to $114.52 a barrel. Analysts report that the country’s chance of a rating upgrade is being hindered by a lack of clarity over how its Sovereign Wealth Fund will grow amid tensions between the Federal Government and state governments over revenue allocation, according to Standard & Poor’s.

Petroleum Industry Bill II

Since our report earlier this year on the Petroleum Industry Bill (PIB), the PIB has been sent by the Presidency to the house of Assembly. It is presently under debate with the lower house of the Nigerian National Assembly. Yet there are key commentators who claim that the PIB is weak on the crucial component...

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Petroleum Industry Bill II

Since our report earlier this year on the Petroleum Industry Bill (PIB), the PIB has been sent by the Presidency to the house of Assembly. It is presently under debate with the lower house of the Nigerian National Assembly. Yet there are key commentators who claim that the PIB is weak on the crucial component of National Oil Company reform.

The Revenue Watch Institute in its assessment has stated that the draft Petroleum Industry Bill (PIB) currently before Nigeria’s parliament is unlikely to significantly boost the performance of the NNPC. The report, based on research comparing relevant parts of the 2012 Executive PIB with the rules and practices of 12 national oil companies worldwide, found that provisions for restructuring the Nigerian National Petroleum Corporation (NNPC) fell short of best practices, failed to address the corporation’s biggest existing challenges and could create new problems. “NNPC dominates the Nigerian oil sector as an asset manager, regulator, and commercial player. Nigeria cannot fully address the big issues its oil industry faces today unless it improves how NNPC works.” – Patrick Heller, senior legal advisor at RWI.

The bill’s sponsors have argued that passing the PIB would turn the sector around, in part because the bill would transform NNPC into a world-class “commercialized” national oil company. This would involve making it profit-minded, financially self-sustaining, politically independent and accountable to the public.

The notable areas of concern are:

  1. The PIB restructures NNPC into three new companies without saying clearly what each would do, or what assets they would control.
  2. The PIB does not define how NNPC will participate in oil exploration and production going forward.
  3. The PIB sets out a limited privatization process for two of the three new companies, but with unclear rules, undefined shareholder rights and arbitrary timelines.
  4. The PIB omits basic fiscal terms and rules for when the new companies can retain earnings, thereby failing to place NNPC on a path to sustainable financial independence.
  5. The PIB, by not setting up technically competent, independent boards or legislative oversight, allows high-level political interference in NNPC to continue.
  6. The PIB undermines transparency by allowing two out of the three new companies not to publish their contracts or audits.

Improving the PIB provisions represents one useful step towards a successful transformation of NNPC. Such provisions would, however, form only one part of the larger plans needed to advance the issues identified as crucial in the report. These include a careful delimitation of commercial and non-commercial roles, the development of a workable model for revenue retention and clear rules for publication of independent audits and reporting to the legislature

Sovereign Wealth Fund

The decision of the Federal Government of Nigeria to establish a National Sovereign Wealth Fund (NSWF) has been greeted with divergent commentaries from various quarters especially from State governments as well as financial and social commentators. Already a bill for the establishment of the Nigerian National Sovereign Wealth Fund has been sent to the Legislative...

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Sovereign Wealth Fund

The decision of the Federal Government of Nigeria to establish a National Sovereign Wealth Fund (NSWF) has been greeted with divergent commentaries from various quarters especially from State governments as well as financial and social commentators.

Already a bill for the establishment of the Nigerian National Sovereign Wealth Fund has been sent to the Legislative arm of government as an executive sponsored bill while a seed capital of one billion US Dollars ($1 billion) has been proposed and set aside for the commencement of the Fund.

SOVEREIGN WEALTH FUND
A Sovereign Wealth Fund (SWF) is an investment fund owned by a sovereign state/nation with the mandate to invest in financial assets such as stocks, bonds, precious metals, property and other financial instruments. However, the objectives might include providing liquidity stabilization funds as well as the funding of vital economic infrastructure projects within the sovereign state. The structure and scope of investments in a sovereign wealth fund generally depend on the circumstances of each nation as well as the enabling law however Sovereign wealth funds usually have long-term investment focus. The need for the SWF is that countries through the SWF diversify their revenue streams by devoting a portion of its reserves to an SWF that invests in the types of assets which act as shields against systemic risk, and in the case of Nigeria, against oil related risk.
SOURCE OF FUNDING AND LEGAL ISSUES ARISING (The Nigerian Story)

In view of the seed capital of one billion US Dollars ($1 billion) from the ‘Excess Crude Account, Governors of the 36 States of the Federation commenced an action against the Federal Government before the Supreme Court (Nigeria’s Apex court) over plans to transfer $1 billion from the “Excess Crude Account” to a new a new account to be known as the “Sovereign Wealth Fund.
A seven-man panel of the court, headed by the Chief Justice of Nigeria, CJN, Justice Dahiru Musdapher, has now assumed jurisdiction of the legal dispute following a breakdown of an out-of-court mediation between the parties. Earlier on, the Federal Government had approached the court (at the commencement of the suit) praying that the parties be allowed to explore amicable resolution of the case through negotiation.

The plaintiffs in their consolidated suit, had sought preservative orders of the court restraining the Federal Government from making any withdrawals howsoever from the account styled the “Excess Crude Account” (or any account replacing same by any name howsoever) pending the hearing and determination of a substantive suit.
They further urged the court to order that all sums standing to the credit of the said “Excess Crude Account”, (or any account replacing same by any name howsoever) be paid into court or be otherwise secured as the court may deem fit pending the hearing and determination of the substantive suit.
It appears that the substance of the disagreement is not with the setting up of the fund, but with the funding from the ‘excess crude account’ which invariably will deplete their monthly allocations from the Federation accounts.

At the last sitting of the court, the case could not progress as the court was indisposed. it remains to be seen what the outcome will ultimately be.

NNPC Proposes New Deadline for Gas Flaring in Nigeria

NNPC Proposes New Deadline for Gas Flaring in Nigeria The Nigerian National Petroleum Corporation (NNPC) has proposed December 31, 2011 as the new deadline for ending gas flaring associated with oil exploration in the country. Sequel to the proposed new deadline, the House of Representatives Committee on Oil and Gas is now considering December 2011...

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NNPC Proposes New Deadline for Gas Flaring in Nigeria

NNPC Proposes New Deadline for Gas Flaring in Nigeria

The Nigerian National Petroleum Corporation (NNPC) has proposed December 31, 2011 as the new deadline for ending gas flaring associated with oil exploration in the country.

Sequel to the proposed new deadline, the House of Representatives Committee on Oil and Gas is now considering December 2011 as the new date to enable the corporation, which is managing the Joint Venture (JV) fields on behalf of the Federal Government, to address factors militating against the attainment of zero flare by oil and gas operators in the country.

Prior to the new deadline proposed by the NNPC, the IOCs in the country had expressed their doubts over the possibility of achieving zero flare out by the end of last year, notwithstanding the threat by the Department of Petroleum Resources (DPR) to sanction defaulters.
The initial flare-out target was set at December 31, 2008. However, although the target could not be achieved, evidence suggests that the flare out rate was reduced by about 45 per cent.
It would seem that the main obstacle to achieving a virtual elimination of gas flaring in the country is the paucity of the infrastructure needed to transmit associated gas from the oil fields to the market centres – instead of flaring it. It will take at least two years to complete a successful gas utilisation programme capable of channelling the flared gas to power stations, inter alia.

Other factors which would militate against the proposed new deadline include political instability in the region, and lack of funds for investment in the industry. With regards to the former, it is impossible to contemplate the feasibility of the new deadline while the Niger Delta region is under siege by criminal gangs and “militants” whose stock-in-trade is violence and kidnapping of oil and gas workers.

With respect to the issue of finance, the notorious delay on the part of the NNPC to fund its part of several JVs is worrisome. The NNPC is a major stakeholder in each of the gas utilisation projects needed to achieve the flare-out deadline.

For further enquiries, please contact:
Adedolapo Akinrele, SAN
Email: dolapo_akinrele@foakinrele.com
Mobile: +234 802 290 5245
Phone: +234 1 2693998