Power: NCP Approves Core Investor For 11 Discos

Source: EWACHE AJEFU, ABUJA BUREAU CHIEF - thewillnigeria.com

ABUJA, August 23, (THEWILL) - The National Council on Privatisation (NCP) has approved core investor sale strategy for the privatization of the eleven distribution companies (DISCOS) created out of Power Holding Company of Nigeria (PHCN.)

The decision was taken at the body’s third meeting for 2010 which held at the Presidential Villa, Abuja. The meeting was chaired by Vice President Mohammed Namadi Sambo.

NCP also approved that bidders be selected on the basis of efficiency improvement, that is, the reduction of Aggregate Technical, Commercial and Collection (ATCC) losses that they would achieve over a five-year period, and the bidder whose bid yields the highest net present value in terms of consequential benefits becomes the preferred bidder.

The privatization council took into consideration the fact that the current ATCC losses sustained by the various distribution companies are estimated at between 40 and 50 percent of the power wheeled to them. This level of losses is unsustainable and if not halted will continue to make the Nigerian Electricity Supply Industry (NESI) absolutely unviable for full and unsubsidized private sector participation.

Under the proposed privatization strategy for distribution companies, a private sector operator will acquire controlling equity interest in any of the distribution companies with a view to rapidly improving its operational efficiency. So, unlike the traditional transaction approach where bidders merely bid on price for the equity shares, bidders would bid on the basis of a trajectory of technical, commercial and collection loss improvements, usually during the first five years of post-privatization operation (or other number of years agreed with the regulator).

Furthermore, this method will be built around the Multi Year Tariff Order (MYTO) issued by the Nigerian Electricity Regulatory Commission (NERC), which essentially sets outs the commercial and economic indices that provide the financial model for the entire NESI.

It would be recalled that the Federal Government approved the National Electric Power Policy in 2001. President Olusegun Obasanjo signed the Electricity Power Sector Reform (EPSR) Bill into law on 11th March 2005.

Following the enactment of the EPSRA, NEPA was transformed into PHCN Plc as a holding company for the assets, liabilities, employees, rights and obligations of NEPA. In November 2005, eighteen new Successor Companies consisting of six (generation companies, one transmission company and eleven distribution entities were incorporated.

NCP also approved that a minority equity interest be offered to States that wish to participate in the privatization of the distribution companies. The Federal Government took this decision based on the premise to partner with willing and interested State Governments in order to more speedily and effectively deal with emerging transaction and risk issues which, without their involvement, may be difficult to resolve.

The privatization council approved the privatization strategy for some of the generation companies and their assets. They include the sale of PHCN Non-Operational Assets – Ijora, Calabar & Oji River Plants. For Sapele Power Plc, Afam Power Plc, and Ughelli Power Plc, the divestiture method is core investor sale whereas the privatization strategy for Kainji Hydro Power Plc and Shiroro Hydro Power Plc is through concession.