Privatised Electricity Distribution
Companies: A Bankable Prospect?
A Presentation at the Bankers’ Committee/BPE Technical
Workshop on Nigerian Power Sector Reform
Eyo O. Ekpo
Commissioner, Market Competition & Rates, NERC
Abuja, 25th May 2011
Table of Contents
1. Background
2. Value of MYTO
3. 2010 – 2011 MYTO Major Review
4. Return on Investment
5. MYTO – Incentive Based Regulation
6. Privatisation
7. Way forward
2
Background
1
Tariff Structure

EPSRA requires NERC to establish cost-reflective tariffs
2
Framework

NERC has adopted a MYTO framework
3
Investor
Return

MYTO balances investor return with consumer welfare
4
Benchmark

MYTO’s benchmarks for calculating revenue requirements
focus on the EFFICIENT OPERATOR
5
Returns

Via MYTO, all licensees recover depreciation, achieve a
fair ROI and recover efficient O & M costs
3
Value of MYTO


Key Investment
Tool
MYTO is the NESI financial model
Enables any capital provider to take an
investment decision

Available cash flow (based on the tariffs) –
MYTO calculates the total revenue requirement
for the industry and derives average tariffs
therefrom

Attractive ROI – A utility is entitled to earn an
above average return on its investments used to
provide service to its customer
Cash Flow
Forecast and
Return
4
2010 – 2011 MYTO Major Review

The MYTO allows for
minor and major
reviews

The 2013 major review
brought forward to in view of
economic realities and policy
considerations

The Commission has issued the
Major Review Consultation Paper




Full MYTO model by end June
and new Order by 31st July
MYTO 2 takes effect from 1st January 2012
FG tariff subsidy continues to mid-2014
PCAF for distributing lifeline tariffs will be set up
5
Industry Cost and Revenue Requirement
2011
2012
2013
2014
2015
294,165,820
4,412,487
298,578,307
1,245,661
8,419,276
513,322
10,178,259
29,472,353
3,791,970
0
651,639
434,426
44,528,647
16,029,772
33,488,062
4,832,163
54,349,998
67,570,763
58,979,799
964,211
7,249,720
2,836,717
191,951,207
430,946,075
6,464,191
437,410,267
1,689,766
9,745,312
513,322
11,948,400
30,928,939
13,017,228
0
838,419
558,946
57,291,931
24,201,472
38,762,432
5,025,450
67,989,353
71,317,879
61,838,364
833,043
8,631,938
3,159,159
213,769,736
539,673,505
8,095,103
547,768,607
2,123,121
11,356,943
513,322
13,993,386
54,328,351
13,355,523
0
1,225,159
816,773
83,719,191
34,073,939
45,172,769
5,226,468
84,473,175
72,905,345
65,166,040
859,030
10,207,789
3,504,171
237,115,549
671,356,117
10,070,342
681,426,459
2,454,170
13,329,005
513,322
16,296,496
77,916,887
11,323,499
0
1,583,053
1,055,369
108,175,304
44,448,294
53,016,738
5,435,526
102,900,558
75,365,730
68,621,023
796,165
11,761,241
3,891,671
263,336,389
736,287,629
11,044,314
747,331,943
2,679,054
15,759,228
513,322
18,951,604
101,973,724
16,127,449
0
2,055,792
1,370,528
140,479,095
55,161,464
62,683,064
5,652,948
123,497,476
77,551,343
72,170,242
794,543
13,578,381
4,313,880
291,905,866
535,058,161
708,471,933
868,603,348
1,052,938,152
1,179,716,904
2011
28,294
26,030
2012
36,905
34,691
2013
45,599
43,775
2014
51,808
50,772
2015
55,563
54,452
Average tariff (NGN/MWh) (billed sales)
18,910.81
19,197.22
19,048.57
20,323.66
21,232.12
Average tariff (NGN/MWh) (Revenue collected sales)
Total
20,555.22
20.56
20,422.57
20.42
19,842.26
19.84
20,738.43
20.74
21,665.43
21.67
Regulated costs (nominal) (NGN '000)
N'000
Total Generation Vesting contract costs + PPAs
Annual NERC Licence charge
Total
Transmission
Opex
Var O&M Costs
Admin costs (fixed)
Fixed O&M Costs
Total
Return on Capital
Return of Capital
Annual Corpoarate HQ Admin charge on TCN
NERC charge
Ancillary service charge 1%
Total
All Discos
Opex
O&M Costs
Admin costs (fixed)
Fixed O&M Costs
Total
Return on Capital
Return of Capital
Bulk Trader charge
Market and System Operator charges
NERC charge
Total
Total
Energy consumption
Billed sales (all discos) (GWh)
Revenue collected sales (all discos) (GWh)
Regulated Tariff
6
MYTO – Incentive based Regulation
• MYTO uses budget caps to incentivise efficiency
• Licensees are pushed to incur costs below budget and thereby earn
rewards for better performance through the tariff, thus improving
their bankability
• A clear example of this is with the projections for losses in the MYTO
model
7
Loses Projection in MYTO
Load
Sent-out from stations (GWh)
Transmission Losses
% of SO
Delivered to Distribution
GWh
Distribution Losses
% of DD
Delivered to customers
GWh
Non-technical losses (non-billed energy) % of DC
Billed to Customers
GWh
Revenue Collection losses
% of
Sales where Revenue is collected
GWh
Revenue based sales as % of Sentout energy
Total technical and non technical losses % of SO
2011
97,131
8.05%
89,312
11.00%
79,488
14%
68,359
8%
62,891
65%
29.6%
2012
109,272
8.05%
100,476
11.00%
89,423
12%
78,693
6%
73,971
68%
28.0%
2013
115,829
8.05%
106,504
10.00%
95,854
10%
86,269
4%
82,818
72%
25.5%
2014
122,778
8.05%
112,895
10.00%
101,605
8%
93,477
2%
91,607
75%
23.9%
2015
130,145
8.05%
119,668
10.00%
107,701
6%
101,239
2%
99,215
76%
22.2%
8
Privatisation
• BPE’s process of transferring assets to private sector management
and funding is driven by clear strategic objectives, that is:
– Increase generation output and efficiency
– Reduce loss levels in distribution
– Retain ownership of TCN but introduce world-class
management and access to independent private sector-led
funding
• BPE has received 331 EoIs for all SCs; at least 40% will pre-qualify
• Successful Disco privatisation is key to growth and all Disco bidders
will require sound financial guarantees/backing, mostly domestic
• Neither privatisation nor medium term M & A, divestiture and
other activity can occur without full commitment from banks
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Conclusion
1
2
3
4
Discos
Regulation
Discos collect all the revenue generated within the industry
Successful privatisation and competent, nuanced
regulation, especially of TCN and Discos, will bring about
the ultimate goal of a responsive, competitive and
bankable market
Tariffs
NERC realises that sensible tariffs are the single most
important element in creating such a market and driving
sustained investment into it
Investment
NERC is determined that MYTO will incentivise investment
and will secure stakeholder buy-in across the board
10
THANK YOU
Eyo O. Ekpo
Market Competition and Rates, NERC
Mobile: (+234) (0) 803 400 5858
E-mail: eekpo@nercng.org
Website: www.nercng.org
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