nigeria’s power privatisation process: learning curves chijioke okonkwo senior consultant june...
TRANSCRIPT
Nigeria’s Power Privatisation Process: Learning Curves
Chijioke OkonkwoSenior Consultant
June 2015
Learning Curves from Structure and Process Adopted for the PHCN Privatisation
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• Introduction• Review Reform Activities• Privatisation Plan• Transaction Strategy• Privatisation Transaction Process• Achievements• Challenges to Long Term Success• Lessons
OUTLINE
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Introduction – Pre-Reform
• Highly insufficient supply, dependent on self-generation for consistent electricity
• Highly Illiquid sector• Very high distribution losses • Approx. half of end consumers unmetered and
receiving estimated bills• Lack of clear and enforceable contracts
between entities• Insufficient maintenance and investment
carried out, assets deteriorated
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• The reform and privatization of NEPA/PHCN was carried out to liberalize the NEI and integrate Private Sector Participation in the power sector
• The success of the reform and privatization exercise meant different things to different stakeholders:– Government savings on budgetary allocation with the
withdrawal from power business– Investors saw an opportunity to invest and operate a very
viable business– Labour wanted job security and severance package– Nigerians yearned for adequate and sustained electricity
supply
Introduction – The Reform
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• PHCN (Power Holding Company of Nigeria)– 6 Generation Companies– 1 Transmission Company– 11 Distribution companies
Introduction - Unbundling
Generation
• Production of Wholesale Power
Transmission
• Wheeling of Power from Gencos to Discos
Distribution
• Wheeling of power at low voltage levels (33KV and below)
• Responsible for retail functions of sale and collections
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• CPCS was engaged as Transaction advisor in 2010• Reviewed the Due Diligence Reports and preparatory
activities for the transaction– Financial and Accounting due diligence – Technical due diligence
– Legal, HR and Organisational review– Assets and Liabilities identification– Business Plans of each SC– Business Valuation of each SC
NERC– Signed Gas Supply Agreements (GSA) GACN/NNPC
Review Reform Activities
BPE
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• Diagnostic Assessment and Development of Privatisation Plans for SCs– Evaluated operations of each SC – issues and
challenges– Assessment of FG preferred privatization options– Advised current and prospective competitiveness of
each SC– Identified measures to attract private sector interest– Assessed various transaction options for each SC– Developed sales methodologies for each SC
Privatisation Plans
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Privatisation Plans - Gencos
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Privatisation Plan - Discos
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Privatisation Plans
Successor Company
Transaction Type
Reasoning
Distribution Companies
Share Sale (60% shares)
• Retain minority shares for states and for employees• To list on stock exchange
Geregu Genco
Share Sale (51%)
• Geregu is newer plant • low rehabilitation costs and higher returns expected
Afam, Ughelli & Sapele Gencos
Share Sale (100%)
• Very old plants• In poor state of repair
Kainji, Shiroro
Concession (30 year)
• Due to water rights and other sovereign concerns, companies concessioned as opposed to sale
• Long term concession to ensure private sector has necessary incentive to make long term investments
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• Non – Divestment Options– Management Contract
• Independent contractor operates the plant• Ownership of plant retained by the government
– Lease• Independent party acquires use of plant• Payment to the government on an annual basis• Asset returned at the end of the term
– Concession• Independent operator runs plant• Upfront payments at the commencement of the concession followed by annual
payments throughout concession term• Asset returned to the government at end of term
• Divestment Option– Plant is sold to independent party/consortium– Payment to current ownership at closing of sale– Existing owner may opt to retain a minority interest
Transaction Strategy – Options for Gencos
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• Bids for generation companies was evaluated based upon a standard highest bid value format
• Bids for distribution companies was evaluated based upon highest reduction in aggregate technical, commercial and collection (ATC&C) losses
• ATC&C is a concept in the power sector used as a measure of the efficiency and effectiveness of a distribution company
• It accounts for the difference between power purchased by discos and revenue collected by discos
Transaction Strategy
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• A reduction in the ATC&C losses is equivalent to an increase in effective supply of electricity to end users
• Bidding on reductions in ATC&C losses is a method designed to use competition to maximize the efficiency of the energy sector
• This method of evaluation was chosen to maximize the benefit to Nigerian consumers and the efficiency of the energy sector
Transaction Strategy
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• Request for EOIs issued in early 2011– 331 EOIs received by March 4, 2011
• Roadshows held in Lagos, Dubai, London, New York, and Johannesburg between January and February 2011– Tremendous interest from the private sector
• 79% of firms shortlisted purchased the bid documents
Privatisation Transaction Process
Short Listed Firms Purchasing Bid
Documents
Percentage
Hydro 40 35 88%Thermal 87 56 64%Distribution 80 72 90%Total 207 163 79%
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• RFP issued on September 1, 2011
• 276 Bid documents were subsequently issued to 163 bidders on September 1st
• Bidders were given access to the Virtual Data Room when they returned completed forms included in the RFP requesting such access
• On September 12th, transaction documents were also distributed to bidders and added to the Virtual Data Room– Over 60,000 document views in the virtual data room
• Pre-Due Diligence Conference held in October 14, 2011
• Physical Data Rooms Opened in October 24, 2011
Privatisation Transaction Process
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• Site visits held in late 2011 over a three-month period• Transaction and Industry Review Conference held in November
2011• Final bids received
– Gencos – 25 bids by July 17, 2012 – Discos – 54 bids by July 31, 2012
• Technical Evaluation took place in August 2012• Financial opening and preferred bidder announcements in
October 2012• Negotiations with Preferred Bidders commenced• Transaction and Industry agreements signed in February 2013• Completion and Handover November 1, 2013
Privatisation Transaction Process
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Achievement -Discos
Successor Company Bidder Purchase Price
($) Purchase Price (Naira)
Abuja Kann 164,000,000 25,799,000,000Benin Vigeo 129,000,000 20,215,000,000Eko West Power and Gas 135,000,000 21,182,000,000Enugu Interstate 126,000,000 19,803,000,000Ibadan Integrated 169,000,000 26,505,000,000Ikeja NEDC 131,000,000 20,638,000,000Jos Aura 82,000,000 12,852,000,000Kaduna* Northwest 163,000,000 25,612,000,000Kano Sahelian 137,000,000 25,612,000,000Port Harcourt 4Power 124,000,000 21,438,000,000Yola Integrated 59,000,000 19,506,000,000
*Kaduna was completed in 2014
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Achievement - Gencos
Successor Company
Bidders Purchase Price ($)
Purchase Price (Naira)
Geregu Amperion 131,000,000 20,567,000,000
Sapele CMEC/Eurafric 201,000,000 31,557,000,000
Ughelli Transcorp 300,000,000 47,100,000,000Kainji Mainstream 237,870,000 37,345,590,000Shiroro North South 111,654,534 17,529,761,885Afam* Taleveras 260,000,000 40,820,000,000
Total $2,660,524,534 N434,081,351,885
*Afam was completed in 2014
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Equity Participation
*Kaduna and Afam were completed in 2014
NigeriaChinaGuersneyKoreaLuxembourgMauritiusNigerPhillipinesSouth AfricaThailandTurkeyUnited StatesZambia
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Equity Participation (excluding Nigeria)
*Kaduna and Afam were completed in 2014
ChinaGuersneyKoreaLuxembourgMauritiusNigerPhillipinesSouth AfricaThailandTurkeyUnited StatesZambia
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• Revenue Gap in Sector– Revenue collected inadequate to cover all costs till investments
are made• Gas availability
– Unpredictability about the availability of gas to cover all capacity expansion plus new NIPP plants
• Transmission Capacity– Critical link between Gencos and Discos– Large investments from FGN needed in order to avoid bottleneck
• Public Patience– Results will not be overnight, public awareness needed on long
term nature of increasing electricity supply
Challenges to Long Term Success
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• Private participation in the sector necessitates the financial viability and liquidity of the sector
• Cooperation at the highest levels is key– With so many actors (BPE, NERC, GACN, NNPC, TCN, NDPHC, PTFP,
PHCN, etc.), cooperation from the highest level helps all actors work together
• While preparation is critical, cannot wait until every piece is “perfect”– While things need to be in place, if we were to wait until every item
was exactly as we would have liked it to be, transaction could not have happened
– In some cases, private sector needs to be in the sector to advocate for what it needs to make investments, cannot do this from sidelines
Lessons
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Thank You!!!