Privatization: Preferred power plant bidders threaten to withhold 75% payment balance unless…

By The Citizen

The preferred bidders for the Electricity Distribution Companies (DISCOs) yesterday threatened that they would not pay the outstanding 75 per cent of the bid price, heightening fears of a logjam in the power sector privatisation programme.

They said the balance, due for payment on August 21, would be withheld until the Federal Government settled all liabilities to the employees of Power Holding Company of Nigeria, PHCN.

Speaking on behalf of the group, former Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Ransome Owan, asked government to conclude all labour issues and meet all conditions  before August 21; release subsidy fund contained in the Multi-Year Tariff Order (MYTO) model for each of the distribution companies under new owners; fund the Transmission Company of Nigeria (TCN) adequately; issue an extended five 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.

He went on: 'It is a condition precedent (CP) that the Discos would be handed over free from all legacy liabilities. Our lenders are mindful of this and are reluctant to approve loans and condition drawdown. Therefore, it is vital for full payment obligations to the current PHCN employees to be finalised by the longstop date of August 21, 2013. Lenders expect evidence of these payments before we can draw down on funds to complete our payments.

'The Transition Electricity Market (TEM) will 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 the market rules. Three CPs remain thus: metering of the grid interface points; testing of the market operators' settlement systems and process, and constitution of a Dispute Resolution Panel (DRP). Without the completion of the CPs, NERC cannot advise the Minister of Power to declare the start of TEM. In essence, the industry agreements (power purchase agreements, vesting contracts, and transmission network agreements), which underpin industry revenue, would be deemed illegal and a nullity until the minister makes the declaration. This government policy risk makes it very challenging for the capital markets inside and outside of Nigeria to support our efforts financially.'

On inadequate revenue to meet industry payments, he noted: 'As of now, the Discos operate at a loss and buyers would quickly deploy their respective turn-business around plans. However… tariff, which guarantees a regulated return and covers all industry payments, is not yet producing the desired results due to systematic and structural problems. If distribution companies are unable to cover the cost of the energy delivered, then the bulk trader, transmission company and generation companies, will be adversely affected.'

The Minister of Power, Prof. Chinedu Nebo, who met with the team in Abuja, assured the DISCO bidders that government was already considering the need to call for a stakeholders' meeting because of the nearness of the deadlines. He said the meeting would be convened soon.

On some of the issues raised by the group, Nebo said approval had been given that part of the proceeds from the sale of 10 National Integrated Power Project (NIPP) plants, about $1.6 billion, would be used to revamp the TCN and the transmission network and system.

He said the request for a new deadline date and tax holiday were issues that could only be considered by the National Council on Privatisation (NCP) headed by the Vice President.

But Nebo ruled out the release of subsidy funds to the new owners even before their take-off.

He spoke on other issues:  'With regard to adequate funding for TCN, from the very first day I took over as Minister of Power, I started harping on the weak link of the entire sector being transmission. The President, the Vice President and the entire cabinet are deeply committed to ensuring that TCN is well funded.

'I want to assure you that TCN should not be a significant worry to you. We are doing everything possible. As we know, part of the proceeds of the 10 NIPP Plants as much as $1.6 billion is being dedicated to improvements in funding of TCN to give us a very good, well-deserved transmission network in the country. That is being addressed already.

'I cannot address the issue of 5-10 years holiday.  We are going to support you as you make demands for that. But I am not a taxman. We can only make our appeal based on the merit. We will do what we can. I can't declare that I can extend August 21. The NCP will have to deliberate on that. What I can do is to play advocacy to ensure that you have at least the support of the ministry. But it is beyond my mandate. It will be communicated to the Vice President.'