NCP approves states ownership of electricity structure

Oscarline Onwuemenyi

29 February 2012, Sweetcrude, Abuja – The National Council on Privatisation (NCP) has approved that State Governments should have the ability to provide for increased access to electricity to their citizens by reaching an agreement with the relevant distribution company whereby the state will make a contribution to the capital expenditure required to rehabilitate and/or expand the network within that state.

This capital contribution will be secured and repaid on terms agreed with the distribution company. The assets thus acquired will become the property of the distribution company but will be wholly utilised within and for the benefit of the citizens of the relevant state. Furthermore, the state will receive compensation within the ambit of the extant tariff methodology. Excess capital costs, if any, will be borne by the State Government. Any investment by the state will not attract any interest payments by the distribution companies.

At its first meeting for 2012 which was held at the Presidential Villa, Abuja, the NCP also endorsed that the percentage of equity that State Governments hold in a distribution company will be determined through independent valuation of actual investments by the respective states in the distribution network.

The valuation will be determined by an independent agency jointly appointed by the State Governments and the Nigerian Electricity Regulatory Commission (NERC.)

Given the lack of economic viability of re-delineating the distribution companies along state boundaries, the NCP approved that the present privatization framework of eleven distribution companies created from the unbundling of the Power Holding Company of Nigeria (PHCN) should be maintained.

NCP approved that 60% of the shares of a distribution company be sold to core investors to allow state governments to participate in the bidding consortia but limit the overall federal and state government shares to 49%. Nonetheless, the NCP approved the Federal and State Governments would not play any role in the management of the privatised successor companies.

It also endorsed that the workers’ allotment would not exceed a maximum of 2% of the overall shares or 10% of the Federal Government shares in each distribution company; whichever is lower.

NCP also approved that shareholders’ agreements will be signed between the Governments and core investors in each distribution company that will explicitly provide for automatic dilution of any Government shareholding where there is a failure to meet payment deadlines.

It also approved that the states may provide counter-guarantees to the distribution companies to cover shortfalls in payments due from the distribution companies for energy supplied to customers within the territorial boundaries of the respective States.

The NCP, which is chaired by Vice President Namadi Sambo, also approved that State Governments through reaching an agreement with the relevant distribution company should be allowed to increase access to electricity to their citizens.
In accordance with the Independent Electricity Distribution Network (IEDN) regulation to be enacted by the Nigerian Electricity Regulatory Commission (NERC), a State that desires to build independent electricity distribution networks within areas of its State not currently served within each distribution franchise area could do so. This would be subject to such a State being licensed to do so by NERC without unnecessary delay.

It would be recalled that the NCP had at its meeting of October 31, 2011 deferred decisions on post-privatization shareholding structure of distribution companies pending when an agreement is reached with the state governments. NCP had also directed BPE and NERC to make presentations to the meeting of the National Economic Council (NEC) that followed the NCP meeting.

On the basis of the presentations and the attendant discussions, the Vice-President and Chairman of NEC had constituted an Ad-hoc Committee on power sector reform to further deliberate on the issues raised and make necessary recommendations to NEC.

Subsequently, the Ad-hoc Committee chaired by the Governor of Cross River State had met on January 25, 2012 and agreed on the issues in dispute which were eventually approved by NEC on January 26, 2012.

About the Author