1. Nigeria’s Power Privatisation Process: Learning Curves
Chijioke Okonkwo
Senior Consultant
June 2015

2. Learning Curves from Structure and Process Adopted for the PHCN Privatisation

3. OUTLINE
Introduction
Review Reform Activities
Privatisation Plan
Transaction Strategy
Privatisation Transaction Process
Achievements
Challenges to Long Term Success
Lessons

4. 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

5. Introduction – The Reform
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

6. Introduction - Unbundling
PHCN (Power Holding Company of Nigeria)
6 Generation Companies
1 Transmission Company
11 Distribution companies
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

7. Review Reform Activities
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
BPE

8. 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

9. Privatisation Plans - Gencos

10. Privatisation Plan - Discos

11. 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

12. Transaction Strategy – Options for Gencos
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

13. Transaction Strategy
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

14. Transaction Strategy
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

15. Privatisation Transaction Process
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
Short Listed
Firms Purchasing Bid Documents
Percentage
Hydro 40 35
88%
Thermal 87 56
64%
Distribution 80 72
90%
Total
207
163
79%

16. Privatisation Transaction Process
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

17. Privatisation Transaction Process
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

18. Purchase Price (Naira)
Achievement -Discos
Successor Company
Bidder
Purchase Price ($)
Purchase Price (Naira)
Abuja
Kann
164,000,000
25,799,000,000
Benin
Vigeo
129,000,000
20,215,000,000
Eko
West Power and Gas
135,000,000
21,182,000,000
Enugu
Interstate
126,000,000
19,803,000,000
Ibadan
Integrated
169,000,000
26,505,000,000
Ikeja
NEDC
131,000,000
20,638,000,000
Jos
Aura
82,000,000
12,852,000,000
Kaduna*
Northwest
163,000,000
25,612,000,000
Kano
Sahelian
137,000,000
Port Harcourt
4Power
124,000,000
21,438,000,000
Yola
59,000,000
19,506,000,000
*Kaduna was completed in 2014

19. Purchase Price (Naira)
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
47,100,000,000
Kainji
Mainstream
237,870,000
37,345,590,000
Shiroro
North South
111,654,534
17,529,761,885
Afam*
Taleveras
260,000,000
40,820,000,000
Total
$2,660,524,534
N434,081,351,885
*Afam was completed in 2014

20. Equity Participation
*Kaduna and Afam were completed in 2014

21. Equity Participation (excluding Nigeria)
*Kaduna and Afam were completed in 2014

22. Challenges to Long Term Success
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

23. Lessons
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

24. Thank You!!!