THE PRESIDENCY, NATIONAL COUNCIL ON
PRIVATISATION
UPDATE ON THE PRIVATIZATION
OF PHCN SUCCESSOR COMPANIES
By
Atedo N A Peterside coN
Member, National Council on Privatisation
(NCP) and
Chairman, NCP’s Technical Committee
11 December , 2012
1
Outline
Early Milestones Achieved
Transitional Market Arrangement
Privatisation Strategy
Transaction Update
Emergence of Preferred Bidders
Next Steps In The Disco and Genco Transactions
Transmission Company of Nigeria (TCN)
Outstanding Challenges
Conclusion
2
Early
Milestones
Achieved
- Passage of Electric Power
Sector Reform Act (EPSRA)
In March 2005 the National Assembly
passed the Electric Power Sector Reform
Act. The Act outlined the framework of
the reform as follows:
Unbundled the state owned power entity
(NEPA) into generation, transmission and
distribution segments;
3
Early Milestones Achieved cont’d…
- Passage of EPSRA
 Provided for the transfer of assets , liabilities
and staff of NEPA to PHCN and then to
successor
generation,
transmission
and
distribution companies
 Created a competitive market for electricity
services in Nigeria
 Set up an independent regulator Nigerian
Electricity Regulatory Commission (NERC).
4
Early Milestones Achieved cont’d…
-Unbundling
 In
November
Companies
2005,
comprising
18
of
New
successor
6
generation
companies, 1 transmission company and 11
distribution companies were incorporated;
 On 1st July 2006, the assets, liabilities and
staff of PHCN were transferred to the
successor companies, thereby granting the
latter greater operational autonomy.
5
Early Milestones Achieved cont’d…
-Market Codes/Rules/NELMCO
 Relevant
market
codes
(Grid,
Distribution,
Performance, Metering etc) have been issued ;
 Companies to carry on the role of bulk trading in
transition and liability management have been
incorporated as Nigeria Bulk Electricity Trading
Co
Plc
and
Nigerian
Electricity
Liability
Management Company (NELMCO) ;
 The Market Rules to guide the operations in the
electricity industry were approved in 2009.
6
Transitional Market Arrangement
-Bulk Trader
 The bulk trader was established in 2011 to Negotiate
and enter into Power Purchase Agreements (PPAs) with
privatised generation companies.
 Assume PHCN obligations under existing PPAs with
Independent Power Producers (IPPs) [outstanding
liabilities to be transferred to Nigerian Electricity
Liability Management Company (NELMCo) – power and
possible gas portfolio] .
 Negotiate and enter into PPAs with potential IPPs.
 Enter into
Companies.
Vesting
Contracts
with
Distribution
7
Transitional Market Arrangement Cont’d...
- Flow Chart
GenCo1
GenCo2
GenCo3
Existing
IPPs
Existing
IPPs
Existing
IPPs
New IPPs
GenCo4
GenCo5
GenCo6
POWER PURCHASE
AGREEMENTS
Additional
Capacity
PPAs
BULK TRADER
(NBET)
VESTING
CONTRACTS
Eligible Customers
DisCo 1
DisCo 2
DisCo 3
DisCo 4
DisCo 5
DisCo 6
DisCo 7
DisCo 8
DisCo 9
DisCo 10 DisCo 11
8
Privatization Strategy
 Approved privatisation strategy for the
Successor Companies and TCN:
 Core investor sale
 Asset sale ( Non Core Assets)
 Management Contract
 Concessions
Disco
TranSysCo
TCN
Genco
• Core Investor Sale (Sale of
Equity)
••Management
ManagementContract
Contract
• Core Investor Sale (Thermal)
• Concession (Hydro)
9
Privatization Strategy Cont’d…
-(Discos)

To emerge as a core investor a bidder will be required
to submit a proposal aimed at reducing Aggregate
Technical, Commercial and Collection (ATC&C) losses
over a five year period ;
 The level of losses that a bidder proposes to reduce
will be incorporated in the Multi Year Tariff Order
(MYTO);
 MYTO will stipulate the annual investment requirement,
allowable operational expenditure, approved rate of
return on equity and other allowable expenses for each
distribution company;
 The selection criteria seeks to appoint an operator with
the best
technical, financial and managerial
qualification for reducing ATC&C losses
10
Privatisation Strategy Cont’d….
- Gencos (Hydro)
Generation
• 2 Hydro Gencos up for Concession
Hydro stations
Kainji HydroElectric Plc
(Comprising Kainji &
Jebba Plants)
•first hydro power
station, established on
the River Niger
•total installed capacity,
1344 MW
•Current capacity 317MW
Shiroro Hydro Electric Plc
•on the Shiroro Gorge on
the River Kaduna
•newest Hydro Station
established in 1990
•installed capacity, 600
MW
•Current Capacity. All units
are available but plant is
down due to Low water
level
11
Privatisation Strategy Cont’d…
- Gencos (Thermal)
Generation
• 4 remaining Thermal Generation Plants slated for
core investor sell
Geregu Power PLC
•Kogi State
•installed capacity, 414
MW
•on stream Available
Capacity 414 MW
•c 2007
•Available Capacity 414
Sapele Power Plc
• Delta State
•Built 1978
• Installed Capacity 1020
•Available capacity 100
MW
Ughelli
•Delta area
•Built between 1966 and
1975
•installed capacity, 900 MW
•Available capacity 150 MW
Afam Power Plc
Comprising of Afam I-V
• Rivers State
•Built 1976
•Installed Capacity 776
•Available capacity 90 MW
12
Transaction Update
 Beginning in December 2010, BPE, re-started the
privatisation of the PHCN Successor Companies.
• The Requests for Expression of Interest were followed by
a series of Road Shows to promote the transactions.
 Road shows were held in:
• Lagos, Nigeria
• Dubai, United Arab Emirates
• London, Great Britain
• New York, United States
• Johannesburg, South Africa
 BPE received 331 EOIs on March 4, 2011 and
subsequently evaluated them
13
100
80
60
40
20
0
Transaction Update Cont’d...
-Shortlist of Bidders
Firms Short
Listed
Firms Purchasing
Bid Documents
Short
Listed
Firms Purchasing Bid
Documents
Percentage
Hydro
40
35
88%
Thermal
87
56
64%
Distribution
80
72
90%
207
163
79%
Total
14
Transaction Update Cont’d...
- Timelines
Milestone
Date Achieved
Draft Industry Agreements Posted
August 15, 2011
Deadline to confirm intention to bid,
$20,000 fee due for purchase of RFP
documents
Issuance of RFP, Information
Memorandum Documents
August 26, 2011
September 1, 2011
Access to virtual Data Room
September 1, 2011
Pre-Due Diligence Conference
October 14, 2011
Opening of Physical Data Rooms
October 24, 2011
Bidders’ Site Visits
November 14- January 30, 2011
Transaction and Industry Review
Conference
November 28 and 29, 2011
15
Transaction Update Cont’d...
- Timelines
Committed Bid Timeline
Milestone
Issue Revised Legal Documents
Generation
Date
March 30,
2012
Distribution
Date
March 30,
2012
Submission of Comments by Bidders
April 20, 2012 April 20, 2012
on the Legal Documents
Distribution/Issuance of Final
May 11, 2012 May 11, 2012
Industry and Bid Documents
Bid Submission
July 17, 2012 July 31, 2012
August 14,
August 28,
Finalize Technical Evaluation
2012
2012
NCP Approval of Technical
August 28, September 11,
Evaluation
2012
2012
Deadline for Submission of PostSeptember October 12,
Qualification Security
18, 2012
2012
September October 16,
Financial Bid Opening
25, 2012
2012
NCP Approval and Announcement of October 29, October 29,
Preferred Bidder
2012
2012
16
Transaction Update Cont’d...
- Tariff and Gas Price
A cost reflective tariff came on stream
on June 1,2012
Commercialization of the Gas-to-Power
sub-sector
• Gas price being transitioned up to
export parity by 2015
• Working towards ensuring that the
gas agreements have a term of 15- 20
years or more back to back with
other industry agreements.
17
Transaction Update
Cont’d...
 Securitization
• Nigeria is working closely with the World Bank to
put in place a Partial Risk Guarantee for the Power
Sector
 Power Sector Incentives
• A series of incentives for the power sector has
been recommended to MOF
 Rural Electrification Agency
• The Ministry of Power has developed a draft policy
that is market driven and utilizes the power of the
private sector to improve rural electrification
 Transitional Subsidy
• In order to mitigate potential “rate shock” to end
consumers, a transitional subsidy of N50 billion has
been allocated by the MOF in the 2012 budget and
captured in MYTO 2 for R1& R2 customers
18
-Bid Receipt and Evaluation
 Bid submission and evaluation process: July 17, 2012, 25
proposals were received for the GENCOs. July 31, 2012, 54
proposals were received for the DISCOs
 3 (three) committees (with members from BPE, NERC, MOP,
NEXANT, CPCS & NIAF) were constituted to evaluate the bids
 Officials from the Economic and Financial Crimes Commission
(EFCC) and Independent Corruption Practices Commission
(ICPC) and SSS served as observers
 Following the conclusion of the evaluation of the technical bids,
the Technical Committee (TC) of NCP reviewed the evaluation
reports for the Gencos and Discos on August 10 and
September 6, 2012 respectively for correctness and fairness.
 For the Discos, the TC considered and deliberated on issues
of firms that scored marginally below the 750 benchmark (i.e.
borderline cases) and few other related issues.
19
Transaction Update Cont’d…
 NCP approved 9 prequalified bidders for the
GENCOs on August 14, 2012 while 31 prequalified
bidders were approved by NCP for the DISCOs
on September 18, 2012.
 Financial bid opening ceremony was held on
September 25, 2012 for the Gencos and October
16, 2012 for the Discos.
 NCP on October 29, 2012 approved the 5 (five)
preferred bidders for Genco & 10 preferred
bidders for Disco.
 US$1,001,654,534 expected from sale of 5
Gencos transactions and US$1,419,000,000
from sale of 10 Discos transactions.
20
Emergence Of Preferred Bidders
-NCP Approved Bidders List For Gencos
Bidder
SC
Bidding Price
Reserve Price
Amperion
Geregu
US$128,520,000
Offer below
reserve price
Mainstream
Kainji
US$50,760,666
Above reserve
price
Final Price US
($)
$132,000,000
$50,760,666
&
Commencement Fee
$237,870,000
Comments
Preferred
bidder
Preferred
bidder
North – South
Shiroro
US$23,602,484.87
Above reserve
price
$23,602,484.87
&
Commencement fee
$111m
Preferred
Bidder
Transcrop/
Woodrock
Ughelli
$300,000,000
Above reserve
price
$300,000,000
Preferred
bidder
21
-NCP Approved Bidders List For Gencos
Bidder
SC
Bidding Price
Reserve Price
Final Price US
($)
Comments
Feniks
Ughelli
$54,000,000
To request
match
reserve price
CMEC/
Eurafric
Sapele
$201,000,000
Above
reserve price
$201,000,000
Preferred
bidder
JBNNestoil
Sapele
$80,000,000
Below reserve
price
$106,500,000
Reserve
bidder
N/A
Reserve
bidder
22
Emergence Of Preferred Bidders Cont’d …
-Outcome of the Disco financial bid opening and consistency test/ NCP approval
SPV/Comp/
Consortium
ATC&C
Loss
Proposed
Ranking of ATC&C
Loss
Percentage Above/
Below Average of
other Bids
Outcome of Consistency
Test
(i.e. Net Present Value)
Recommendations &
NCP Approval
ABUJA
Interstate
Electrics Ltd
KANN
Consortium
Utility Company
Ltd
21.62%
18.43%
1
2
17.31%
-14.75%
Negative NPV
(N146,
581,184,000.00)
Failed initial
consistency Test
Positive NPV
N106,717,355,000.00
Preferred Bidder
Positive NPV
N58,104,747,000.00
Preferred Bidder
BENIN
VIGEO Power
Limited
Southern
Electricity
Distribution
Company (SEDC)
21.78%
17.72%
1
2
22.91%
-18.64%
They were
disqualified for
submitting multiple
bids
23
Emergence Of Preferred Bidders Cont’d …
-Outcome of the Disco financial bid opening and consistency test/ NCP approval
SPV/Comp/
Consortium
ATC&C
Loss
Proposed
Ranking of ATC&C
Loss
Percentage
Above/ Below
Average of other
Bids
Outcome of
Consistency Test
(i.e. Net Present
Value)
Recommendations &
NCP Approval
EKO
Integrated
Energy
Distribution &
Marketing Ltd
21.43%
1
25.62%
Positive NPV
N64,721,679,000.00
Positive NPV
N79,815,618,000.00
New Electricity
Distribution
Company
Consortium
(NEDC)/KEPCO
20.43%
2
18.37%
West Power &
Gas
18.55%
3
5.18%
Honeywell
Energy
Resources
International Ltd
16.33%
4
-9.68%
SEPCO-Pacific
Energy
Consortium
15.70%
5
-13.76%
OANDO
Consortium
14.29%
6
-22.71%
Positive NPV
N85,819,699,830.00
3rd choice
(cannot win)
Can not win because
they are the
preferred bidders
of Ikeja
Preferred Bidder
Reserve bidder
24
Emergence Of Preferred Bidders Cont’d …
-Outcome of the Disco financial bid opening and consistency test/ NCP approval
SPV/Comp/
Consortium
ATC&C
Loss
Proposed
Ranking of ATC&C
Loss
Percentage
Above/ Below
Average of
other Bids
Outcome of
Consistency Test
(i.e. Net Present
Value)
Recommendations
Positive NPV
N47,822,316,000.00
Initially
failed Consistency Test
with negative NPV of
N124,376,096,000.00
but got reprieve for
the NPV to be
recomputed /
Preferred bidder
ENUGU
Interstate
Electrics Ltd
Eastern Electric
Nigeria (EEN)
Ltd
20.83%
15.99%
1
2
30.27%
-23.24%
Positive NPV
N48,634,376,000.00
Reserve Bidder
IBADAN
Integrated
Energy
Distribution &
Marketing Ltd
New Electricity
Distribution
Company
Consortium
17.46%
1
10.82%
Positive NPV
N78,138,907,000.00
Positive NPV
N98,583,637,000.00
17.14%
2
7.70%
Preferred Bidder
(1st Choice)
Reserve Bidder
25
Emergence Of Preferred Bidders Cont’d …
-Outcome of the Disco financial bid opening and consistency test/ NCP approval
SPV/Comp/
Consortium
ATC&C
Loss
Proposed
Ranking of ATC&C
Loss
Percentage
Above/ Below
Average of other
Bids
Outcome of
Consistency Test
(i.e. Net Present
Value)
Recommendations
IKEJA
Integrated Energy
Distribution &
Marketing Ltd
New Electricity
Distribution
Company
Consortium
(NEDC)/KEPCO
VIGEO Holdings,
Gumco, African
Corporation AFC &
CESC Consortium
Positive NPV
N67,272,911,000.00
22.51%
1
27.43%
4th choice
(cannot win)
Positive NPV
N88,540,556,000.00
20.43%
19.27%
2
3
Preferred bidder
13.00%
5.23%
West Power & Gas
Ltd
18.08%
4
-2.53%
Honeywell Energy
Resources
International Ltd
16.25%
5
-14.09%
OANDO
Consortium
14.29%
6
-25.99%
Positive NPV
N77,880,326,000.00
Reserve Bidder
Positive NPV
N94,272,764,640.00
26
Emergence Of Preferred Bidders Cont’d …
-Outcome of the Disco financial bid opening and consistency test/ NCP approval
SPV/Comp/
Consortium
ATC&C Loss
Proposed
Ranking of
ATC&C Loss
Percentage Above/
Below Average of
other Bids
Outcome of
Consistency Test
(i.e. Net Present
Value)
Recommendations
Preferred Bidder
JOS
Aura Energy Ltd
16.22%
1
N/A
Positive NPV
N31,348,520,000.00
21.21%
1
N/A
Positive NPV
N57,111,771,000.00
Preferred Bidder
19.55%
1
N/A
Positive NPV
N49,930,017,000.00
Preferred Bidder
KANO
Sahelian Power SPV
Ltd
PORTHARCOURT
4Power Consortium
YOLA
Integrated Energy
Distribution &
Marketing Ltd
18.58%
1
N/A
Positive NPV
N24,282,261,000.00
Preferred Bidder
(2nd Choice)
27
In every case, the "eligible" bidder with the highest ATC&C won except for Abuja Disco,
Emergence Of Preferred Bidders Cont’d …
-Plan B

Eligible prequalified bidders
have been invited to express an
interest in afam genco and
kaduna disco on or before 31st
january 2013.
Thereafter, the sale of these
two successor companies will
proceed.
28
Next Steps in the Disco and Genco
Transactions
 A Preferred Bidder’s Bank Guarantee for fifteen percent
(15%) of the transaction value within fifteen (15) business
days of notification from the Bureau of Public
Enterprises.
 The designated Preferred Bidder will be invited for
negotiations with BPE.
 Within fifteen (15) Business Days after signing of the
Sale and Purchase Agreement or the Shareholders’
Agreement, whichever is earlier, or at a mutually agreed
earlier time, the Bidder shall make a down payment of
twenty-five percent (25%) of the share purchase price.
29
Next Steps in the Disco and Genco
Transactions Cont’d...
 Within six (6) months after signing of the Sale and
Purchase Agreement or the Shareholders’ Agreement,
whichever is earlier, or at a mutually agreed upon time,
the Bidder will be required to pay the outstanding seventy
five (75%) of the share purchase price to complete the
transaction.
 Handover of the successor company to the preferred
Bidder.
 At the close of business on 23 November, 2012 all 5
gencos preferred bidders and 10 disco preferred bidders
submitted their post qualification bankers guarantee for a
total sum of $335 million.
 This qualifies
negotiations.
all
the
bidders
to
be
invited
for
30
Transmission Company of Nigeria (TCN)
 A successor company of PHCN;
 Incorporated in November 2005
following enactment of EPSR Act 2005;
 Owns and operates the transmission
system from 132kV and above;
 Currently functions as an integrated
Transmission Service Provider (TSP),
System Operator (SO) and Market
Operator (MO).
31
Transmission Company of Nigeria (TCN) Cont’d…
-Functions
TSP
SO
MO
•Design,
specification,
construction and
commissioning of
transmission assets
•Inspection,
preventive,
corrective and
planned
maintenance of
installations
•Connections to
network
•Efficient
generation
scheduling and
dispatch
•Demand
forecasting ,
system and
operational planning
•Enforcement of
Grid Code
compliance
•Fault management
and system
restoration (after
collapses)
•Bulk electricity
metering
•Electricity market
settlements
(balancing energy
and cash)
•Management of
payments from
Discos and
payments to Gencos
32
Transmission Company ofNigeria(TCN) Cont’d…
-Importance of TCN
 TCN is an indispensable link in the electricity value
chain
NIPP
Generation –successor companies
Jebba
Hydro
Market
Kainji
Hydro
Shiroro
Hydro
Egbin Delta Afam Sapele
IPP’s
Operator
Transmission and System Operator
Distribution
Abuja Kaduna Enugu
Ikeja Ibadan Jos Port
Harco Eko Benin Kano Yola
Customers
Low Voltage
Medium Voltage
High Voltage
33
Transmission Company of Nigeria (TCN) Cont’d…
-Rationale for TCN Management Contract
 The need to place TCN on the path of best practice,
reliability and self sustenance in order to ensure
predictability and security of the transmission system;
 Management contractor will bring in external experience on
sector development
 The current design of the management contract provides
clear targets and incentives
 Contractual obligation for capacity building of TCN staff to
enable them for future roles post-management contract
 The Management contractor will enable the complete
unbundling and independent operation of the System and
Market Operator functions into an Independent System
Operator, allowing the entities to concentrate on their core
functions and thus further enrich the industry.
34
Transmission Company of Nigeria (TCN) Cont’d
… Selection of Management Contractor
 Role of MC is to reposition TCN for financial
sustainability and capacity and ability to exceed
demanded service delivery.
 The process of selecting an MC for TCN started in
February 2006.
 3 firms – ESBI, Terna Rete Elettrica Internazionale,
and Power Grid Corporation were shortlisted.
 Financial bids were opened on September 12, 2007 and
upon equalization of technical and financial scores ,
Power Grid scored the highest. It was in the process of
obtaining NCP approval that FG suspended the power
sector reform program.
35
Cont’d … Selection of Management Contractor

On December 19, 2011 fresh RFPs were issued to ESBI, PGC
and MHI. ESBI declined to participate.

Bids were submitted on February 29, 2012 & Technical bid
evaluation was conducted on March 8 and 9, 2012.

Manitoba Hydro International (MHI) scored 82.49 % to beat
the minimum score of 75% ,while Power Grid Corporation (PGC)
scored 61.92% and thus failed to pre-qualify for opening of
their financial bid.

MHI’s financial bid was opened on Tuesday April 3 at a well
attended ceremony and negotiations commenced immediately
after.

NCP approved the technical evaluation result and our request
to commence negotiations with MHI.

After signing of contract major crisis broke out over due
process in the selection of the MC but this has been resolved
with BPP.
36
Cont’d …
- Current Status of MHI Contract
 The BPP issued a letter of “Ratification” to BPE
on the following terms:
 List of reimbursable to be included in Contract
as an addendum;
 The contract to be signed afresh between
MHI, BPE and TCN and DG to sign only for BPE
and Ministry of finance to sign for TCN to be
witnessed by Legal adviser of TCN;
 The contract sum is for US$ 23, 605,514.00;
 The review of the contract has been done.
37
Transmission Company of Nigeria (TCN)
Cont’d …
- Current Status of MHI Contract
 The BPE and Ministry of Power need to
conclude
on
all
contractual
issues
pertaining to the smooth take off of the
MC.
 The TCN board needs to be constituted .
 The Independent expert
identified and appointed.
needs
to
be
 Outstanding invoice payments need to be
concluded.
 The Ministry and BPE should work together
38
so that MHI takes over fully and in line with
Outstanding Challenges
 Resolution of labor Issues fundamental for
the close of the transaction
 Resolving the issue of Land Titles for
properties that have none
 Addressing Transitional issues that will come
up before hand over of the transaction
 Concluding negotiations successfully with all
the preferred bidders.
 Valuation of state Government investments in
the discos
 Resolution of all issues to do with TCN
39
Conclusion
 The process for the privatization of PHCN
successor companies has reached an advanced
stage.
 With the selection of preferred bidders we are
likely to close the transaction with the
preferred bidders for 5 gencos and 10 discos by
mid 2013.
 Sale of Kaduna disco and Afam genco will
conclude later.
 To achieve the above time line we must continue
to work very closely with all critical
stakeholders.
40
THANK YOU
41