A Review of the Nigerian Energy Industry

Power: Bidders for Discos seek extension of payment deadline

ERERA Power lines14 August 2013, Abuja – The preferred bidders of the 10 distribution companies, Discos, carved out from the unbundling of the Power Holding Company of Nigeria, PHCN, Tuesday stated that unless the federal government met their conditions they might not be able to pay the outstanding 75 per cent bid price and take over the distribution assets.

The bidders also requested an extension to the payment deadline just about two weeks before the expiration of the deadline set by the National Council on Privatisation, NCP, for the payment of the outstanding balance.

But the Minister of Power, Prof. Chinedu Nebo, has said government would only make realistic adjustments that are consistent with its PHCN privatisation timelines, reminding the bidders that adjustments had initially been made necessitating changes in the deadline for the conclusion of the privatisation.

One of the demands, which 10 out of the 11 bidders for the distribution assets – with the exception of Kaduna Distribution Company which is still undergoing privatisation – tabled before Nebo at a meeting in Abuja yesterday, included the possible extension of the deadline for the payment of the 75 per cent outstanding bid price by 31 days.

In accordance with the revised PHCN privatisation timeline, the deadline for the payment of the outstanding balance was fixed for August 21 by the NCP.

Other demands the bidders, who met with the minister under the auspices of Roundtable of Distribution Companies (Disco Roundtable), made included a request that the government hands over the assets free of all legacy liabilities.

In this regard, it asked the government to fast track the payment of severance benefits to employees of PHCN companies, so that they (bidders) could access the funds needed to pay up the 75 per cent balance.
The Chairman of the Disco Roundtable, Dr. Ransome Owan, in his remarks, explained that government’s negotiations with PHCN labour unions had remained a source of concern to financial institutions willing to lend monies to the bidders.

Owan stated that it was necessary for government to finalise the payment of severance benefits of the workers before August 21, adding that lenders would require evidence of these payments before funds for the completion of payments could be drawn down.

He said given the circumstances, government should consider the request for an extension of the payment deadline to September 21, as this would give time to the government to complete payment of the severance benefits.

“By March 21, 2013, all the 10 bidders made the 25 per cent down payment and the balance is to be made by August 21, 2013. It is a condition precedent that the discos would be handed over free of all legacy liabilities.

“Our lenders are mindful of this and are reluctant to approve loans. Therefore, it is vital for full payment obligations to the current PHCN employees be finalised before August 21. Lenders expect evidence of these payments before we can draw down on funds to complete our payments,” Owan said.

He further explained: “At the moment, the Discos operate at a loss and buyers would quickly deploy their respective turnaround plans. Therefore, we pray the minister to convene a stakeholders’ meeting before August 21 to check the progress before the long-stop date.

“In addition, the minister should kindly consider the following: conclude all labour issues and meet all conditions precedent before August 21, 2013; provide assistance in the release of the subsidy contained in the Multi Year Tariff Order (MYTO) model for each of the Discos; and ensure the adequate funding of the Transmission Company of Nigeria (TCN).”

The bidders also made a request for a five-10-year special tax holiday for electricity distribution companies, similar to fiscal incentive granted telecoms operators. He said this would mitigate tariff increases and high costs.

In his response, Nebo acknowledged that the ministry was fully aware of the challenges of the bidders, adding that the ministry had taken into consideration some of the issues to allow for a smooth transition of the privatisation process.
He, however, indicated that government was banking on the payment of the outstanding balance to offset most of its financial obligations, adding that it was at the discretion of the NCP to grant the extension for the payment deadline.

Nebo further explained that the ministry would begin payment of the severance benefits of employees of PHCN distribution companies next week after it might have concluded payment to employees of the generation companies and PHCN corporate headquarters this week.

“We are not unaware of the challenges that lie before us. Some of these issues raised, we have been mulling for the past few weeks. We are working to ensure that the condition precedents are completely met before the declaration of the transmission electricity market.

“I do think that we need to realise that there will be some adjustments here and there but everything will still be consistent with the spirit of the reform. Going by the definite date and timelines, as we can see now, might not resolve all the problems; we are already experiencing slippages but we are going to address the issues as diligently as we can to ensure that the slippages are kept to a minimum,” Nebo said.

Speaking on the payment of the outstanding balance for the Discos, he said: “You have given us a task: on the one hand, you are asking us to meet all the conditions precedent by 21st of August and on the other hand, you are telling us that while we meet our own obligations, you are not going to be able to meet your own.

“We will do whatever we can but there is no way we can ensure full payment by the end of August.”

On additional funding provisions for TCN, the minister said: “Part of the proceeds from the sale of the National Integrated Power Projects, NIPPs, as much as $1.6 billion, will be assigned to the improvement of TCN to give us a better transmission network and that should not be your problem now.

“We appreciate and share your concerns but I am sure you know that the process was supposed to have been completed by December but it didn’t happen.

“I believe that we should be declaring the transition electricity market open by September, so we need you to pay up so that we can settle the workers.”

– Chineme Okafor, This Day

In this article

Join the Conversation