The following article, written by Clara Nwachukwu and Oscarline Onwuemenyi on October 17, 2012:  

Abuja — Six firms have won the bids to operate ten electricity distribution companies across the country, a process which may signal the end of efforts by the Federal government to privatize the successor distribution companies (DISCOs) created from the unbundling of the Power Holding Company of Nigeria (PHCN).

According to the National Council on Privatisation, which is headed by the Vice President, Namadi Sambo, the envisaged total proceeds from the sale of 60 per cent of the 10 DISCOs being offered for sale is N197.25 billion.

Companies bidding for the 10 distribution companies include Interstate Electrics Ltd, KANN Consortium Utility Ltd, Vigeo Power Consortium, Southern Electricity Distribution Company, Integrated Energy Distribution and Marketing Ltd., New Electricity Distribution Company Consortium, West Power and Gas, Honeywell Energy Resources International Ltd., SEPCO-Pacific Energy Consortium, OANDO Consortium, Western Consortium, Sahelian Power SPV, Aura Energy, and 4Power Consortium.

The interstate Consortium include Emeka Offor's Chrome Energy, Power House International Ltd, and Metropolitan Electricity Authority, MEA, of Thailand.

Chairman, Powerhouse International, Mr. kester Enwereonu, said the combined balance sheet of the consortium members was in excess of $20billion.

To run the two DISCOs, the consortium noted that although the two companies are in close proximity, they have proposed two sets of management teams, one for each of the DISCOs.

Results at the end of the bidding process showed that Integrated Energy Distribution and Marketing Ltd, which is being promoted by former head of state, retired General Abdulsalami Abubakar, won management of the Eko Distribution Company with about N20.7bn above average of other bids. The company also won the bids to operate the Ikeja, Ibadan and Yola distribution companies, making it the company with the highest wins in the process.

Interstate Electrics Limited fronted by Sir Emeka Offor won the bid to operate the Abuja Distribution Company as well as the Enugu Distribution Company. The bid to operate the Benin Distribution company, however, was won by Vigeo Power Consortium which has Gbolade Osibodu as its major shareholder, while 4Power Consortium emerged sole bidder for the Port-Harcourt distribution company.

The Kano and Jos distribution companies are to be operated by Sahelian Power SPV Ltd and Aura Energy respectively.

The Director-General of the Bureau for Public Enterprises, BPE, Mrs. Bolanle Onagoruwa, who spoke at the opening of the commercial bids submitted by pre-qualified prospective core investors in Abuja, expressed hope that successful bidders would take over the distribution companies and re-establish them as the solid foundation of the Nigerian Electricity Supply Industry.

She noted that commercial proposals of bidders for five generating companies were successfully opened three weeks ago, adding that the process of concluding those transactions is now proceeding steadily.

According to Onagoruwa, the broad objectives of the electricity sector reform include to attract and encourage private sector participation; attract capital to fund the sector; and ensure a level-playing ground for all investors.

She noted that: "We all know that the electricity sector is very capital-intensive, necessitating the entry of private capital and capable management to ensure efficient deployment of the greater physical and financial resources that will come into the sector.

"Investment in the generation sector will bring about greater generation capacity and energy available component of the reform and is one of the pre-conditions for the start-up of a competitive electricity market in Nigeria."

The BPE DG noted that in the privatisation of the power sector that re-commenced in earnest in 2010, the NCP/BPE has adopted a three-pronged strategy that focuses on the three sectors of generation, transmission and distribution.

"Our strategy has been borne out of an enlightened view of the challenges that have bedeviled the electricity industry, especially in the last two decades when the gap between investment and demand became really wide.

"In generation, we have focused on asset sales of the thermal generating companies and concessions of the hydro plants. These will ensure that new owners will focus immediately on recapitalizing their companies and recovering the licensed generating capacities that have long been lost to the national grid".

FG retains 100% transmission

She noted, however, that in transmission, "we have retained 100% ownership of the Transmission Company of Nigeria but with a management contract in place that brings in Manitoba Hydro International as a management contractor who will be supervised by a capable Board of Directors from both the public and private sectors.

"Finally, in the distribution sector, we have focused on adopting a method that maximises rapid infrastructure improvement. In essence, we have focused less on proceeds from asset sales, though we will receive substantial proceeds. Instead, we have emphasised the need for preferred bidders to display the ability to immediately bring in investments that will remove the very high loss profiles of all the eleven (11) distribution companies.

"In other words, preferred bidders will be selected on the basis of efficiency improvements, that is, the reduction of Aggregate Technical, Commercial and Collection (ATC&C) losses that they can achieve over a five-year period."

She added that in designing the model for the selection of the preferred bidder, BPE has taken into consideration the fact that the current Aggregate Technical, Commercial and Collection (ATC&C) losses sustained by the various distribution companies are estimated at between 35 and 40 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 unsubsidized private sector participation.

"Furthermore, this privatisation strategy is built around the Multi Year Tariff Order (MYTO 2) issued by the Nigeria Electricity Regulatory Commission (NERC), which essentially sets out the commercial and economic indices that provide the financial model for the entire sector. MYTO 2 stipulates the annual investment requirement, allowable operational expenditure, approved rate of return on equity and other allowable expenses for each distribution company.

In addition, the valuation of the distribution companies' regulated asset base, as determined by NERC, is the basis for the equity payments to be paid by the preferred bidder for each company."

According to Onagoruwa, "It is important to state that the reform of the power sector presents enormous investment opportunities. I wish to reaffirm the Federal Government's commitment to ensure the comprehensive and successful completion of the electricity sector reform and privatisation process."

On his own part, the Chairman of the Technical Committee of the National Council on Privatisation, NCP, Mr. Atedo Peterside, noted that all the prequalified bidders were given access to the virtual data room from September 1, 2011 to the proposal submission date of July 31, 2012.

He explained that, "Pre-qualified bidders were also allowed to visit the distribution companies and physical data rooms that were located within the franchise area of each distribution company.

By the bid submission deadline of 5pm on 31st July 2012, the Bureau of Public Enterprises (BPE) received 54 proposals from pre-qualified bidders.

He added that three committees were formed to evaluate the bids that were received.