A Review of the Nigerian Energy Industry

Governors allege fraud in sale of PHCN firms

19 October 2012, Sweetcrude, ABUJA — GOVERNORS of four of Nigeria’s 36 states have described as fraudulent the recent sale of the Power Holding Company of Nigeria, PHCN, distribution companies, DISCOs, by the Bureau for Public Enterprises, BPE.

They are Governors Adams Oshiomhole of Edo State, Emmanuel Uduaghan of Delta State, Kayode Fayemi of Ekiti State and Olusegun Mimiko of Ondo State.

The four states, alongside their technical partners, jointly bidded for the Benin Electricity Distribution Company which was awarded to the Indian company, Vigeo Power Consortium.

They said the privatisation process was a racket and unacceptable to them.

Vigeo Power Consortium has, however, put up a strong defence, arguing that in view of the reputation of companies under the group, which included the African Finance Corporation, AFC, there was no way it could be involved in unethical transactions.

Speaking in Abuja at a joint press conference, the governors, who faulted the entire bid exercise conducted by the BPE, alleged that the exercise did not pass the credibility test.

As a result, the governors noted that since they were not considered in the process as host states, they were fully prepared to stop the bid winner, Vigeo Power Consortium from operating in their respective states.

Governors’ verdict
Edo, Ekiti, Delta and Ondo states bid for the Benin DISCO under the name, Southern Electricity Distribution Consortium, but Vigeo Power won a process they described as suspicious and lacked transparency, adding that it goes contrary to President Goodluck Jonathan’s talk about transparency, openness and rule of law.

According to them, “the entire process was a racket that’s inconsistent with running a transparent government. The BPE used a set of criteria that have never been used before.

“The figures put forward by Vigeo were shady and we observed that funny things started happening even before the bids were opened. We know the importance of power and we cannot allow a mediocre to take over the destiny of our people.

“A number of technical issues are at stake in this exercise. The winners of the bid have little knowledge about the environment in which they want to operate. The BPE manipulated the process in favour of the preferred bidder.”

According to the governors, besides lacking the technical know-how to operate the company, sponsors of Vigeo do not have the required financial capability to handle the project, adding that having invested huge taxpayers’ money from their various states in the electricity distribution projects, they are not going to sit by and watch their people’s investments go down the drain.

The governors wondered how Vigeo’s technical partner, NDPL with operational scope of 510 square kilometres managed to win a bid to operate a 57, 000 square kilometres service territory in an area like the Niger Delta region without any knowledge of its volatility.

They said Vigeo does not even know the area, yet they want to do something in five years that they have not been able to do in 11 years in an urban 500 kilometre territory they are currently operating in.

“Our consortium(Uttar Gujarat Vij Company Ltd- India) is led by the industry leader in India covering 4328 villages and 43 towns. It won the Gold Shield Award for the Year 2011 for utility excellence, posting the highest loss reduction ever in Asia (6.6 percent in 2010) and (10.12 percent in 2011).”

The four state governors also accused the BPE of attempting to further cripple the power sector by manipulating the bid process in favour of individuals with the “right connection” but without the required financial muscle and technical know-how to operate the project.

The governors further alleged that the bid winners quoted forged figures and cooked up the books in order to win, and stressed that the people in their states would be made to suffer if the manipulation was allowed to stand and that the government of the day would also suffer the backlash.

They added: ‘’In our region, you cannot succeed in operating the utility without the participation of the state governments, knowledge of the environment and relationship with the different stakeholders like the youths, community leaders and others. Our consortium passed all these tests but others did not.

“Our states have invested heavily in power generation, transmission and distribution across the length and breadth of our respective states as we recognise the importance of power as the precondition for socio-economic growth and industrialisation of our states.

“It was for this reason that we participated in the bid process and came out as the most technically competent with the consortium that is most suited to the peculiarities of our region. The BPE should not play with our collective future.

Experts urge governors to lose gallantly
However, some experts who commended the transparency in the opening of the commercial financial bids conducted by the BPE on Tuesday urged the four state governors to adopt the spirit of sportsmanship with regard to the result of the bids.

They noted that other state governments, which also participated and lost in the bids, have not condemned the process because they lost.

A former Executive Director, Power Holding Company of Nigeria, PHCN, Mr Bisi Oyinloye, told journalists in Lagos that the selection process for the winners of the DISCOs was very transparent, and urged the BPE not to be daunted by the governors’ criticism and see the process to the end.

He said: “From what I saw on the television, the process couldn’t have been more transparent; the guidelines were given to everybody and they also took a risk. Some quoted low loss rates, while others quoted high loss rates. So, I don’t know why the people that lost out are kicking against the process.

“Nigerians will always be critical, but the truth is that everyone was given the guidelines and they all had equal opportunities.”

In his opinion, what the BPE and governors should worry about is whether the bid winners will be able to meet their loss rates.

Also speaking, the Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, commended the Federal Government for opening up the power sector to private firms.

He argued that “Private owned firms are far better than public owned ones. State monopoly is the worst structure in any country. As long as people are paying for what they are using, Nigeria will be better off.”

A former Head, Transmission and Systems Operations, PHCN, Mr. Abayomi Adekunle, expressed surprise at the governors’ attack, saying, “I am surprised that some of the governors are raising eyebrows over the selection process. There is no way anybody could have gone behind to influence the process.

“The exercise couldn’t have been more transparent. You have to be an entrepreneur to commit funds to be able to meet the loss target used in judging the top bidders. This is what will guarantee good staff and remuneration that will reduce the loss ratio.

“The governors lost because they did not want to commit funds to be able to accommodate the loss. But they still have 30 per cent, so I don’t see any reason why they should be worried,” he said.

Promoters of Vigeo Consortium
Vigeo Power is chaired by Mr. Victor Gbolade Osibodu, husband of the Managing Director, Union Bank Plc, Mrs. Funke Osibodu, with Mr. Abu Ismail Ejoor, as Business Head, Power Division.

Accusation reckless, unfounded — BPE
Reacting sharply to the governors’ accusation, a spokesman of the BPE, Mr. Chukwuma Nwokoh, said the accusations of a flawed process and irregularities were unfounded and reckless, adding that the process was transparent and credible.

“The accusation of a flawed process and irregularities against the BPE in the privatization of PHCN distribution companies by the governors are unfounded and reckless. Our process was transparent and we were guided by the provisions of the request of proposals for the transaction.”

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  • The governors have raised questions that cannot be wished away by any right thinking person. While the BPE may feign righteous indignation, the fact remains that the states have invested heavily in power distribution within their domains. If they had taken the pain to come together for the purposes of jointly running the power distribution in their area and secured the services of a technical partner, their bid should have been considered seriously. Better still, they have now raised serious issues regarding the technical competence of their partner and the seeming incompetence of Vigeo’s partner. They have also made threats which cannot be wished away. The NCP must act fast.

  • John Okusuwa via Facebook

    Let the winners be barking, they will meet the people to tell the truth. Refusing to involve major stakeholders is unfair.

  • Sweetcrude and john, NGN, complain that foreign investors are not coming into the country. With this noise, how will they come? This is sure unprofessionalism and degradation of foreign investor’s reputation. Do u think these foreign investors want their names to be soiled like this over a project in Nigeria they are not even sure by the end of the day will even start? They didn’t get these in many countries they have been to. Foreign investors do not dictate what happens in a country. It is the partners in the country they invest in do all the underground works. They provide the funding. They didn’t say,Let’s go to Nigeria to invest. Our people pitched them in to invest and our people do what it takes to make sure they get the bid. I believe the governors are unhappy about the result of the bid because they have collected upfront money to push the bid process and it did not go through, probably becos they were confidence they wud win it. Now, they have to go to every means to discredit the capability of the winner of the bid. Nonsense! If they were smart, they should have gone underground, speak with the bid winners, let them know this will not work becos they will make it difficult for them to operate becos of vested interest. So..u have to partner with our technical partners and get job done. Simple…Terms will be agreed and project will be completed….We lack thoughtful leaders…I am disappointed in this…..