PHCN Privatisation: NCP to Adopt Core Investor Strategy
- By Simeon Ogoegbulem
- Published August 30th, 2010
- News
- Unrated
ALL seem to be set for the privatization of the power sector of the economy as the National Council on Privatisation (NCP) has approved core investor sale strategy for the privatisation of the eleven distribution companies created out of Power Holding Company of Nigeria (PHCN). The move to offload the distribution companies was part of the decision taken by the NCP at its recent meeting in Abuja.
The NCP is the highest government decision making organ on privatization matters. The body is chaired by Vice President Mohammed Namadi Sambo.
NCP also approved that bidders be selected on the basis of efficiency improvement, that is, the reduction of Aggregate Technical, Commercial and Collection (ATCC) losses that they would achieve over a five-year period. The bidder, whose bid yields the highest net present value in terms of consequential benefits, becomes the preferred bidder.
The privatization council took into consideration the fact that the current ATCC losses sustained by the various distribution companies are estimated at between 40 and 50 per cent of the power wheeled to them. This level of losses is unsustainable and if not halted will continue to make the Nigerian Electricity Supply Industry absolutely unviable for full and unsubsidised private sector participation.
Under the proposed privatisation strategy for distribution companies, a private sector operator will acquire controlling equity interest in any of the distribution companies with a view to rapidly improving its operational efficiency. So, unlike the traditional transaction approach where bidders merely bid on price for the equity shares, bidders would bid on the basis of a trajectory of technical, commercial and collection loss improvements, usually during the first five years of post-privatisation operation (or other number of years agreed with the regulator).
Furthermore, this method will be built around the Multi Year Tariff Order (MYTO) issued by the Nigerian Electricity Regulatory Commission (NERC), which essentially sets out the commercial and economic indices that provide the financial model for the entire industry.
The federal government recently approved the National Electric Power Policy in 2001. Former President Olusegun Obasanjo signed the Electricity Power Sector Reform (EPSR) Bill into law in March 2005.
Following the enactment of the EPSRA, the National Electric Power Authority (Nepa) transformed into PHCN Plc as a holding company for the assets, liabilities, employees, rights and obligations of Nepa. In November 2005, 18 new successor companies, consisting of six generation companies, one transmission company and 11 distribution entities, were incorporated.
NCP also approved that a minority equity interest be offered to states that wish to participataae in the privatisation of the distribution companies. The federal government took this decision based on the premise to partner with willing and interested state governments in order to speedily and effectively deal with emerging transaction and risk issues which, without their involvement, may be difficult to resolve.
The NCP is the highest government decision making organ on privatization matters. The body is chaired by Vice President Mohammed Namadi Sambo.
NCP also approved that bidders be selected on the basis of efficiency improvement, that is, the reduction of Aggregate Technical, Commercial and Collection (ATCC) losses that they would achieve over a five-year period. The bidder, whose bid yields the highest net present value in terms of consequential benefits, becomes the preferred bidder.
The privatization council took into consideration the fact that the current ATCC losses sustained by the various distribution companies are estimated at between 40 and 50 per cent of the power wheeled to them. This level of losses is unsustainable and if not halted will continue to make the Nigerian Electricity Supply Industry absolutely unviable for full and unsubsidised private sector participation.
Under the proposed privatisation strategy for distribution companies, a private sector operator will acquire controlling equity interest in any of the distribution companies with a view to rapidly improving its operational efficiency. So, unlike the traditional transaction approach where bidders merely bid on price for the equity shares, bidders would bid on the basis of a trajectory of technical, commercial and collection loss improvements, usually during the first five years of post-privatisation operation (or other number of years agreed with the regulator).
Furthermore, this method will be built around the Multi Year Tariff Order (MYTO) issued by the Nigerian Electricity Regulatory Commission (NERC), which essentially sets out the commercial and economic indices that provide the financial model for the entire industry.
The federal government recently approved the National Electric Power Policy in 2001. Former President Olusegun Obasanjo signed the Electricity Power Sector Reform (EPSR) Bill into law in March 2005.
Following the enactment of the EPSRA, the National Electric Power Authority (Nepa) transformed into PHCN Plc as a holding company for the assets, liabilities, employees, rights and obligations of Nepa. In November 2005, 18 new successor companies, consisting of six generation companies, one transmission company and 11 distribution entities, were incorporated.
NCP also approved that a minority equity interest be offered to states that wish to participataae in the privatisation of the distribution companies. The federal government took this decision based on the premise to partner with willing and interested state governments in order to speedily and effectively deal with emerging transaction and risk issues which, without their involvement, may be difficult to resolve.
