Wednesday, 29 February 2012

Core Investors to be sold maximum of 60% of Nigerian power firms

Nigeria’s National Council on Privatisation (NCP) which is oversees the privatisation process in the country has approved that 60% of the shares of the proposed power firms to be privatised be sold to core investors.

 This is to allow state governments to participate in the bidding consortia seeking to buy the Power firms. The NCP has also set the upper limit on the overall federal and state government shares to 49%. Nonetheless, the NCP approved the Federal and State Governments would not play any role in the management of the privatised successor companies.

It was also endorsed that the workers’ allotment would not exceed a maximum of 2% of the overall shares or 10% of the Federal Government shares in each distribution company; whichever is lower.

NCP also approved that shareholders’ agreements will be signed between the Governments and core investors in each distribution company that will explicitly provide for automatic dilution of any Government shareholding where there is a failure to meet payment deadlines.

It also approved that the states may provide counter-guarantees to the distribution companies to cover shortfalls in payments due from the distribution companies for energy supplied to customers within the territorial boundaries of the respective States.

The NCP, which is chaired by Nigeria’s  Vice President Namadi Sambo, also approved that State Governments through reaching an agreement with the relevant distribution company should be allowed to increase access to electricity to their citizens.

 In accordance with the Independent Electricity Distribution Network (IEDN) regulation to be enacted by the Nigerian Electricity Regulatory Commission (NERC), a State that desires to build independent electricity distribution networks within areas of its State not currently served within each distribution franchise area could do so. This would be subject to such a State being licensed to do so by NERC without unnecessary delay.

The National Council on Privatisation (NCP) has approved that State Governments should have the ability to provide for increased access to electricity to their citizens by reaching an agreement with the relevant distribution company whereby the state will make a contribution to the capital expenditure required to rehabilitate and/or expand the network within that state.

This capital contribution will be secured and repaid on terms agreed with the distribution company. The assets thus acquired will become the property of the distribution company but will be wholly utilised within and for the benefit of the citizens of the relevant state. Furthermore, the state will receive compensation within the ambit of the extant tariff methodology. Excess capital costs, if any, will be borne by the State Government. Any investment by the state will not attract any interest payments by the distribution companies.

 NCP also endorsed that the percentage of equity that State Governments hold in a distribution company will be determined through independent valuation of actual investments by the respective states in the distribution network. The valuation will be determined by an independent agency jointly appointed by the State Governments and the Nigerian Electricity Regulatory Commission (NERC.)

Given the economic un-viability of re-delineating the distribution companies along state boundaries, the NCP approved that the present privatisation framework of eleven distribution companies created from the unbundling of the Power Holding Company of Nigeria (PHCN) should be maintained.

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