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.

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.

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.

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.

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.

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.

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.

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

Sahelian Power SPV Limited offered 21.21 per cent ATC&C loss reduction.

4Power Consortium offered 19.55 per cent ATC&C loss reduction.

Integrated Energy Distribution & Marketing Limited offered 18.58 per cent ATC&C loss reduction.