12 November 2013, Abuja – With the successful conclusion of the privatisation of the assets of the defunct Power Holding Company of Nigeria, PHCN, the Director General, Bureau of Public Enterprises, BPE, Mr. Benjamin Dikki, spoke with Ejiofor Alike on some aspects of the exercise that generated considerable interest.
Given the skepticism and fears associated with the private sector management of assets, what are the safety measures that protect consumers from exploitation by the private investors that bought over the assets of the Power Holding Company of Nigeria?
Let me give a little background before we get to consumer protection. The most important thing is assuring quality service at affordable and reasonable price. That is why the former National Electric Power Authority (NEPA) was broken down into successor companies.
Let me explain a little further. There used to be one NEPA that generated all the power. This has now been broken down into six generation companies to introduce competition. If there was only one big power supplier, it would be substituting government monopoly with private sector monopoly. So, we have broken down the company into six generation companies to introduce competition.
One thing is very clear. Where there is competition, prices eventually come down. If you recall the telecommunication revolution, Sim cards were sold initially for up to N50,000, N40,000 and N30,000. But because there was competition, these prices were driven down by the forces of competition and now you have free sim cards. The same competition is going to ensure that we have the cheapest supply of power.
The way the market is structured, the cheapest power supply will be put on the national grid first, before the more expensive one. That also leads to efficiency in the generation. Furthermore, to introduce efficiency, before NEPA had integrated company – the generation departments would generate power, and would not care what happens to it –they remitted it to the distribution company and whether the monies were collected or not, nobody cared, because it was in an integrated company. But with the separation of generation from distribution, those who generate power will issue a bill, which means that they will give power at a defined cost, to the distribution company.
The distribution company that takes the power at a cost will distribute it to the last man –user – the households and the companies. If they don’t collect full money, it means they have lost because they will have to pay the generation companies. So, this will ensure collection of all the revenues in the value chain and once revenues are collected in the value chain, and profits are made, it will induce the private sector to invest more.
So, they will invest more in generation; they will expand distribution to areas that have not been covered in order to maximise their revenue. So, there are in-built checks and balances that ensure that the consumer gets the best out of the sector.
Let us be patient. It takes time to buy spare parts, especially in a specialised industry like power. Some of these spare parts have to be specially ordered and it might take, in some cases, three to six months, to get these supplies made available. With the takeover by the private sector, we expect them to now make orders for spare parts and other materials that they will need to upgrade the system. They will need to maintain the system.
The mere fact that they will institute high quality service and maintenance culture will ensure that the current installed capacity is close to full capacity. Currently, the 6,000megawatts we have installed, we are struggling to generate 4,000mw. I do not think it has crossed 4,000mw by any significant amount. These are all because the standard maintenance procedures are not followed.
The private sector man will ensure that when a spare part needs to be replaced, it is replaced immediately, so that the machine can produce maximum power. I am very sure that in the next three to six months, we will cross the 5,000mw threshold because this private sector people will ensure that they produce the maximum power out of the existing installed capacity.
What is the current state of the transactions involving Afam Power Plant and Kaduna Distribution Company?
You will recall that after the first process, no investor emerged with the required technical qualifications to take up Kaduna Disco and Afam Genco. So, a plan B had to be put in place where all the prequalified bidders were asked to re-bid. That has been done and the preferred bidders have emerged. We are in the process of negotiating the sales purchase agreement to be executed. Once we execute it, they will be obligated to pay 25 per cent and then the balance of 75per cent in six months, according to the transaction structure. Televeras won Afam; North West Power won Kaduna Disco.
There are two Afam Power plants. There is one that is being built by Shell as an IPP and that is not the one that is being sold.
Now that we have liberalised power sector, all you need to do is to go to the Nigerian Electricity Regulatory Commission (NERC); obtain a license and you can set up a power plant. That is the beauty of liberalisation, that is the beauty of abrogating monopoly; that is the beauty of liberalising a sector. That is the beauty of creating conducive investment environment for the private sector.
If you remember, we had 450 lines in the telecommunication sector. Once the sector was liberalised and licenses were auctioned, we understand that over $40billion has been invested by different telecoms companies. That is why we have over 120 million lines in use in Nigeria and it is growing every day. These telecoms companies are investing every day, trying to improve network, trying to reach the areas that have not been reached.
If this was under government, it would have been impossible because if you use $40 billion of the Nigeria budget, it means the whole budget has been dedicated only for telecom and it will not even be sufficient. That is the whole essence of the transformation agenda of President Goodluck Jonathan, which is centered on creating conducive atmosphere for the private sector to feel free, to come and invest, whether local or external investors. That is what the transformation agenda is all about. We are looking at ways of improving the investment environment for whoever is a genuine investor in this country.
When Interstate Electric was not able to beat the deadline for the Enugu Disco, the Chairman of the Technical Committee, Mr. Atedo Peterside, came out to say that ordinarily, the reserve bidder should be called to pay but that was not done, fueling speculations that Enugu Disco was earmarked for Interstate from the beginning. What actually transpired?
Now, for you to understand, let us go back a little because some people are insinuating that Enugu Disco was dashed to Interstate. I want people to remember that an advertisement was placed in both local and international newspapers, inviting Expressions of Interest (EOI). Interstate submitted EOI. They were evaluated and they were shortlisted. They were given a period like all the other companies to do due diligence, which they did. They submitted a technical and financial proposal, which was evaluated and they were found technically competent to emerge as preferred bidder for Enugu Disco. Then, the financial bid opening was done and Interstate emerged as preferred bidder among all competitors.
A sales purchase agreement was signed with Interstate, which says the company should pay 25 per cent on a particular date; that was March 21 and Interstate paid. Then they were supposed to pay the balance of 75per cent on August 21. Now, I want to explain to you that there is a provision in the sales agreement that says that each preferred bidder must apply to the BPE for approval of the facilities they are going to procure to pay for the enterprise. The ratio is that you allow a maximum facility of 70 per cent loan and 30 percent equity. There is a clause in the sales agreement that says that the federal government reserves the right at any time to take back the companies.
Now, if government is to take back the companies, then government must be able to verify the loans that have been taken. That is why the condition was now put in the clause that for each preferred bidder to procure a facility to pay for the enterprise, he must apply to BPE for approval. And that the approval should not be unreasonably withheld and that if, for any reason, that becomes an issue, the preferred bidder is entitled to ask for 20 days extension.
Another condition was that if the industry documents were not available. There were three conditions. So, Interstate comes on August 20, that is, a day to the expiration of the deadline, and applied for us to approve a facility. The facility was in another sister company’s name, that is, a sister company to Interstate Electric. The facility was not in the name of Interstate. So, we wrote Interstate telling them that we would not accept the facility in a sister company’s name because there was no nexus between – there is nothing to show us the relationship between that company and Interstate.
We wrote them on that August 20, telling them that the facility was not approved because it was not a facility to Interstate. We have no reason to believe that the facility will be used to pay for the assets. So, they came forward again, after they received our letter, they came on the same August 20 and we held a meeting where they gave us further explanations. We told them that we acknowledged that the amount of facility they were procuring was exactly the amount required to pay for the asset and that the letter also stated that the money would be lent to Interstate but they did not specify the reason. But we actually wanted it to be clearly stated that it is for payment for Enugu Distribution Company.
After reviewing the situation, we now wrote Interstate on August 21, telling them that we would accept the facility subject to the fact that they bring us memorandum of understanding (MoU) that links Interstate and that company that procured the facility. We told them that once they bring the MOU, we will approve the facility. Interstate claimed they didn’t get the letter until the August 22, which was a day after the expiration of the deadline. They now wrote us and invoked the clause that gives them an extension of 20 days. What we basically did after that was to call a technical committee meeting, and the facts were laid before the committee. We told the technical committee to take note that as at August 21, Interstate did not pay a kobo. That will remain a fact for forever, whether you extended or not. Secondly, Interstate has written, invoking the clause that grants them 20-day extension.
We laid the facts before the technical committee so that they could make recommendation. The technical committee deliberated and made their recommendation to the National Council on Privatisation (NCP). We took the matter to the NCP and NCP deliberated and said that the clause that Interstate invoked entitles them to 20 days extension and since Interstate has already paid before the expiration of the 20 days, they are in order. So, the transaction was approved. If you go back through the process I have explained, you will see that Interstate was not dashed the company. They qualified in their own right to run that company and to win the company. Their technical proposal was evaluated by a team of local and international experts from BPE, EFCC, NEXANT, CPCS and they adjudged Interstate’s proposal to be qualified.
Interstate went through the bidding process and emerged. It was only at the payment stage that issues arose and those issues were also covered by the clause in the agreement. So, it was after the expiration of the 20 days, if he had not paid, that he would have been out of time and the transaction would have been nullified.
We understand that Geometric Power also made investments in the power infrastructure in Aba in Abia State, under a special arrangement with the federal government. What is the fate of this agreement in view of the recent sale of the assets to Interstate?
Let me explain the situation. Geometric, through the Aba Power Company had a lease agreement with the then NEPA. There was issue of supplying stable and reliable power to Aba. You know that Aba is a huge commercial and industrial area and there wasn’t available power to feed this very important commercial centre in Nigeria. So, NEPA went into a lease agreement with Aba International Power. The agreement provides that Aba Power Company will go to that Aba ring-fenced area, that is, what we called ring-fenced generation.
The Aba Power Company is allowed to go there and develop the generation and distribution capacities and also distribute power in that localised area for a period of 21 years. So, it was now left for Aba Power to do their business model, that is to say, if I invest XYZ, will I be able to recover my cost in 21 years and make profit, because the landlord is not obligated to renew the contract after 21 years. That landlord before was PHCN but today, since Interstate has taken over, Interstate has now become the new landlord. So Geometric will operate within their ring-fenced area and pay rent to Interstate.
It is a landlord-tenant relationship. The landlord will give you room in his house and you will pay rent to him. Since Geometric has taken away a portion of the economically viable portion of the Enugu Disco, they must pay a royalty; they must pay a concession fee; they must pay a rent to Interstate. But Geometric will continue to generate power and distribute it within that defined geographical area for a period of 21 years. At the expiry of 21 years, if they are able to renegotiate and Interstate extends, that is their business. If, after 21 years, Interstate refused to renew the tenancy, so be it and the assets will revert to Interstate.
What was the greatest challenge you faced during the privatisation of PHCN assets?
The greatest challenge was dealing with the labour. It took 14 months to negotiate with labour and come to an agreement. Before payment started hitting the accounts of the PHCN workers, there were some elements among them that created the impression that labour was not paid a dime. What simply happened was that the pension component was paid to the pension custodians and the pension custodians and PenCom have their own procedures before the payment hits the Retirement Savings Account (RSA) of the individuals.
As far as the government was concerned, once the money moved to the pension custodians, government has paid. But labour was saying that nobody has been paid until they receive alerts. That created a lot of tension in the system, which was absolutely unnecessary but at the end of the day, after dialoguing with the labour, we gave them the evidence and they saw the evidence and as God would have it, before the handover date, many of them got the alerts for the RSA accounts. So, we have had one of the most peaceful handover and I must commend labour for their comportment and cooperation throughout this process because if labour did not cooperate with us, this reform would not have been successful.
What factor do you think contributed largely to the success of the programme?
It is also very important to note that if we didn’t had support from the highest level of government, which is the President and the Vice President, who are committed to this privatisation process, we would not have succeeded. The President was presiding over a bi-monthly meeting of the Presidential Action Committee on Power (PACP) in person every two weeks since August 2010. The president would sit down and chair a meeting where all the issues and obstacles to privatisation were brought to the table and the President and Vice President frontally addressed them.
So, all the obstacles that were going to be a road block to the implementation of the privatisation were effectively removed by the President and the Vice President. I would want to commend them for their commitment to this reform process. All of you know now that history has been made in this country. We believe that in the next few months, power will stabilise in Nigeria and that will be the end of darkness.
Thank you all for your support because the press played a very critical role in sensitising the public and generating the necessary interest in that sector.
– This Day