Energising the sector: Privatisation of the former state-owned power company begins

In the second half of July 2012 hopefuls submitted technical and financial bids for 17 of the 18 companies formed from the state-owned Power Holding Company of Nigeria (PHCN). With announcement of the preferred bidders for five out of six generation companies made in September 2012. An accumulated total of over $1bn had been offered for the power plants at Ughelli, Sapele, Geregu, Shiroro and Kanji. Nigerian players, sided by foreign energy conglomerates, featured prominently among the favoured bidders.

FOR SALE: Also popular were the 60% stakes on offer in Nigeria’s 11 regional power distribution companies. The preferred candidates were made public on October 16, 2012. Integrated Energy Distribution and Marketing won management of the Eko Distribution Company and bids to operate the Ikeja, Ibadan and Yola distribution companies. Interstate Electrics will operate both the Abuja and Enugu distribution companies. The Benin Distribution Company was won by the Vigeo Power consortium, while the 4Power Consortium was the sole bidder for the Port-Harcourt Distribution Company. The Kano and Jos distribution companies are to be operated by Sahelian Power SPV and Aura Energy, respectively. National Council on Privatisation Vice-President Namadi Sambo said the envisaged total proceeds from the sale of the 10 distribution companies totalled around $1.26bn.

Meanwhile, electricity trade unions long opposed to privatisation were still in tense negotiations with authorities as of September 2012. Their representatives now insist they are not against power reform as such, but are merely concerned about their pension rights. The government has promised substantial funds to cover any shortfall, with the main outstanding dispute hinging on whether settlement should be made under the terms of the 2004 pensions act or not.

DIFFICULT CHOICES: How the transactions themselves pan out is another question. The sale of distribution companies, for example, is not just a matter of price. It is primarily to be based on quality of service and efficiency criteria. Government officials will also need to make a judgement call on the credibility of investors’ finances and their technical plans moving forward. As regulatory chief Sam Amadi told journalists in July 2012, it is not yet clear what, if any, the “plan B” for privatisation is.

Investors taking on distribution companies, moreover, will have their work cut out for them. As of mid-2012, around half of Nigerian household power customers did not have electricity meters – a deficiency that the regulator has insisted be remedied within 18 months.

According to one PHCN source, it is estimated that 70% of the power consumed by affluent customers was not paid for. “Although power sector reform is going in right direction, investments in transmission and distribution continue to face challenges due to leakages and insufficient cost recovery,” said Alain de Cat, Siemens’s energy sector vice-president for Africa. “Careful attention from the government towards basic infrastructure is needed to reassure private investors.”

POWER PLAY: Meanwhile, there is a stand-off at the remaining ex-PHCN company, national grid owner and operator, the Transmission Company of Nigeria (TCN).

Alone among the 18, this division will not be privatised.

The TCN is currently the subject of a management contract signed in July 2012 with Canada’s Manitoba Hydro International (MHI). Worth $23.7m, MHI’s contract runs for three years and includes commitments to reducing electricity losses in transmission; achieving certain grid security; and local training and capacity building. Expatriate staff are to be kept to a minimum, with just eight foreigners being brought into key management positions and the Nigerian incumbents staying on as their deputies. According to Bart Nnaji, the former minister of power, TCN is understaffed and, prior to authorising the contract, it was agreed that over 1000 additional engineers and technicians would need to be hired.

MHI has had to bear the brunt of electricity unions’ general protests since its entry in July; however, a more general settlement will likely lead to a resolution.