Nigeria’s federal government hopes to conclude the final sale of Afam Electricity Generating Company by mid-2018 and also Yola Distribution Company, later the same year, BusinessDay has been told.
The Federal Government’s third attempt at privatising Afam power plants 1-5, as well as Yola which it is optimistic, would now be successful, was announced by the presidency in September, following approval by the National Council on Privatisation the previous month.
“We have actually started the process of appointing transaction advisers. Once that process is concluded, the actual bid process will commence and we can begin to call for request for proposals and all the other transactional process that will then lead to the emergence of the preferred core investor in both plants.
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“We think that Afam will be relatively easier than Yola. Afam we should be able to close in six months, beginning from January next year. We hope to get the final approvals for the financial advisers by the end of this month or early December. But the transaction process itself should start in January. For Yola, we think it will take a bit longer, maybe about eight months,” Director-General of the Bureau of Public Enterprises (BPE), Alex Okoh told BusinessDay in an exclusive interview. The Afam Power station which was first built in 1962 and later
expanded from 1 to 5 has an installed capacity 1,000mw but only
produces about 100MW. Okoh said the strategy being deployed in the privatisation of these assets would make them successful, and hopefully inject additional power into the national grid and improve electricity nationwide.
Giving an update on the process, Okoh said “Afam actually went through two failed privatisation attempts, the last being the one done during the genco successor companies’ privatisation. But that ended up with the refund of the payment that was made by the preferred bidder for various issues.
“There is a part of Afam that is being developed for fast power that has the capacity to generate close to 240 megawatts. That is what is called Afam 3, so it is under development. We think that that adds value to the entire plant in terms of the attractiveness of the plant to investors which wasn’t there when the Televeras group pulled out.
“Even before starting the transactions, we have had one or two unsolicited interest of bids for Afam, which tells you that investors see value on the plant and I think that, that value is coming essentially from the development of the Afam 3 Fast power. So, I believe that this time around, we will be successful in privatising the power plant.
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He explained that Yola was obviously because the core investor declared a forced Majeure due to security issues there.
He said the government has to be a little bit more creative in terms of how it approaches the privatization and that the plan is actually to break the plant into smaller manageable business units, to make it attractive to prospective investors.
“I think that attempting to privatise Yola as one geo-commercial area may not be feasible. It is just a simply vast space to cover administratively and also monitoring and deploying the distribution infrastructure, feeders, sub-stations and all of that, it is just so huge.
“So we think that it may be wiser to break Yola into smaller units, maybe into two or three more manageable units.
“If we can do that, I think that we shouldn’t have much of a problem with Yola. And also you would agree with me that substantially, the issues in the area have improved from what it was when the force majeure was declared by the previous core investor to this stage,” Okoh noted.
Meanwhile, the federal government has also commenced the evaluation of all privatised entities, beginning with the power sector successor companies to determine how far the companies have lived up to privatisation expectations and whether the terms of the agreement as contained in the contracts are being adhered to.
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Okoh also told BusinessDay that the post-privatisation which the BPE, under him, intends to follow vigorously became critical for the government to determine where there are issues and what kind of intervention action would be necessary.
“Our assessment so far shows that about 63 per cent of all the enterprises that have been privatized, commercialized are satisfactory in terms of the performance relative to the privatization, and about 37 per cent of them are really not meeting up to expectations,” Okoh said.
“We want to start with the power sector entities and see how we can, escalate it to the other ones that have been privatised, commercialised or reformed in one way or the other. So if there are issues, we can proactively determine what those issues are and determine what kind of intervention action would be necessary.”
He said the Bureau is a not deploying manual type of monitoring and is already engaging with a top consultant to provide the technology platform which would be non-intrusive, and totally independent to monitor the entities. According to him, the framework is basically to gauge huge expectations from the government, and particularly Nigerians who own these assets, relative to reality on the ground.
“Two weeks ago, we actually had an event to open the financial bids for the
power sector monitoring consultants that we intend to engage in providing the monitoring for the successor companies of the PHCN that were privatised.
“For me, privatization itself assumes a fundamental principle, which is that state-owned enterprises are better managed using private-sector principles that will revolve around performance management, returns on investment and stuff like that. And that was the basis on which these enterprises were privatised. The second is that having done that, the entities will then be able to deliver better services to the public because they are better managed.
“We are therefore looking at the covenants that were signed by the core investors, we are looking at the performance agreement, the share sale and purchase agreement, everything that the transaction assumed at its conceptualisation, how far have been delivered in reality.
He admitted that some of the privatized entities are underperforming because some of the agreements that were signed between the government and the investors could be providing some lacuna which the actors are exploiting.
“The agreements, unfortunately, provided certain gaps which some of the operators may not be properly relating to. We also need to be sincere enough to admit that, perhaps, the government has not honoured some of the commitments it made in the agreements,” the DG responded to concerns on why the privatization had recorded noticeable failures.
He hinted that going forward, the BPE would ensure that it embeds clauses in the sale agreements, that would enable the bureau still be able to monitor activities of privatised entities, even if they are sold hundred per cent.
He, however, explained that for those entities that were sold hundred per cent, there is little or nothing that the government can do but that for others where the government still has either a stake or under concession, it will evoke some of the clauses in the agreements that empower it to take one form of corrective action or the other can be evoked. “For those that have been concessioned, the easiest way is not to renew the concession agreement once it expires,” Okoh noted.
“And that is one of the lessons for us, going forward, if we consider an asset or enterprise of strategic national importance, even if it is a hundred per cent privatization, we want to be able to embed in the contract of sale, some leverage for the Bureau to still be able to monitor or at least have some idea of how that asset is doing. “
He also disclosed that for the power sector, an initiative is ongoing that would likely correct the present anomalies.
“I don’t want to say much about that, but essentially, the new initiative will give both BPE and the Nigerian Electricity Regulatory Commission (NERC) some leverage to take some corrective actions where there are concerns about the operations of the entity.”
Okoh also hinted that the BPE is working out plans to get the privatised entities listed on the stock exchange, particularly those in which the government has retained some stakes.
He also mentioned that a major strategy being worked on is to embed in the sale agreement clauses to get privatised entities list on the exchange going forward.
Onyinye Nwachukwu, Abuja
