08 September 2013, Lagos – As Nigeria concludes power sector privatisation by handing everything over to private investors, successful buyers of the respective electricity firms have outlined reasons why the Federal Government must keep to the agreements reached during the process.
The power firms said each side of the bargain must respect the sanctity of the agreements for at least the next five years, as both international and local lenders rely on the accord.
They told our correspondent that Deposit Money Banks would not hesitate to halt the release of funds for the upgrading and fixing of the acquired power firms if they sensed any form of default on the part of the government.
The Chairman, Roundtable of Electricity Distribution Companies – a body which comprises the successful bidders of the power firms – Dr. Ransome Owan, stated that the conduct of the privatisation process was controlled by the pact between the government and the private investors.
Owan, who is a former Chairman/Chief Executive Officer, Nigerian Electricity Regulatory Commission, said, “The (privatisation) process is a great success. All the parties, both the sellers and buyers have worked very hard to achieve success till date.
“However, the issue of sanctity of contract simply means that these parties have entered into agreements which each side should respect. These agreements are going to be important for the next five years. Lenders and bankers are also going to rely on these agreements to extend new loans to these new buyers.
“Remember that everything that was paid on August 21, 2013 went directly to government coffers and not to turn around the business. So, by contract, each of these buyers will have to go back to these banks to borrow money to fix the problems in the firms. Therefore, the bankers are relying on those set of agreements to see whether each side will respect them or not.”
On August 21, 2013, the Federal Government, through its Bureau of Public Enterprises, received the outstanding 75 per cent payment for the purchase of the country’s electricity distribution and generation companies from 13 private investors.
Though one of the private investors could not meet the deadline, it was learnt that the firm had been working tirelessly to offset the outstanding sum.
Further findings also showed that the level of transparency in the process has received recognition from both international and local agencies.
As a result, stakeholders have urged the government not to respect all the conditions in the agreements, especially as it finalises the sale of the power firms.
The calls from industry observers were triggered by the seeming controversy surrounding the payment of the Enugu Electricity Distribution Company.
Top government functionaries had expressed divided views over a possible extension of the deadline for the preferred bidder for the Disco, Interstate Electrics Limited, to pay the balance of 75 per cent of the bid sum.
They, however, asked the government and concerned agencies to tread cautiously as the privatisation process was still tender to record any pitfall.
Meanwhile, Owan said the agreements would make the Discos and Gencos bankable, stressing that DMBs would only respect the investors if the accord was strictly guarded.
He said, “Now, to the extent that this is what is controlling the conduct of both parties, I encourage both parties to work carefully to meet both the intent and the letter of the agreement. These new buyers, both the Gencos and Discos, will rely on these agreements to make them bankable. For if an agreement is not bankable, lenders will not respect it and they will not give out money.
“But when it is bankable, this means that all the terms of the agreements are kept and lenders like this. So, we believe that honouring these agreements will help the sector a great deal. Parties can amend agreements as they deem fit, but only to the extent that it benefits the whole process.”
On whether the deadline for the payment of the outstanding 75 per cent by the Gencos and Discos caught the investors unawares, Owan said it did not.
He said, “The August 21 date was not a surprise to the buyers and the sellers, everybody was aware. And since people did not receive any extension from the government, it means the government was not changing its position. Now, in every agreement, there are some clauses that, if you like, are there for you to take.
“For example, all those who have paid in full chose not to trigger any of the things that have not been completed. For there are things which have yet to be completed by the government called ‘Conditions Precedent.’
“So, by doing that, implicitly, companies that paid have waved those conditions, but that doesn’t mean that the government should not meet the conditions. They paid completely in order to make progress and it doesn’t mean that somebody in that group who wants to benefit from those clauses cannot trigger them.”
Also, a senior official of one the power generation companies told our correspondent that the privatisation of the sector would not give the desired results if the government rescinded its decision to respect the agreements.
The source, who pleaded not to be named because he was not authorised to speak on the subject, said, “We cannot afford to fail in this business of privatisation considering all the funds deployed into it so far. But the truth remains that if the government, or even if an investor defaults on some of these agreements, it might dint the process and defeat the goals of the sector.”
– The Punch