Transcript LABOUR OFFER
The Privatization of The Power Sector The Journey So Far
By Bolanle Onagoruwa Director General, Bureau of Public Enterprises May 25, 2011
Outline
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Introduction
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FGN Power Reform Agenda
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Milestones Achieved in the Implementation of the Electric Sector Power Reform Act ( 2005)
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Current Status
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Conclusion
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Introduction
At the onset of the democratically elected civilian administration in 1999, the Nigerian electric power sector had reached, perhaps, the lowest point in its 100 year history:
• Of the 79 generation units in the country, only 19 units were operational. Average daily generation was 1,750 MW.
• • • No new electric power infrastructure had been commenced and completed between 1989-1999.
The youngest plant was completed in 1990 and the last transmission line built in 1987.
An estimated 90 million people were without access to grid electricity.
Accurate and reliable estimates of industry losses were unavailable, but were believed to be in excess of 50%.
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FGN Power Reform Agenda
FG’s reform of power sector is gingered mainly by
The need to reduce the cost of doing business in Nigeria in order to attract new investment through provision of quality and dependable power supply to the economy for industrial, commercial and socio domestic activities; The growing demand for stable and reliable power requiring heavy investment in sector; and The desire and need to be up to global standards.
The need for improvement in the efficiency of the distribution, generation and transmission network which is in a comatose state.
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And our vision for its Achievement Through promotion of:
Competition Good corporate governance and financial discipline Social accountability and efficient use of resources A sustainable environment for meeting the need/demand 5
Milestones Achieved ( National Electric Power Policy) To Transform Sector FGN/ BPE took the following steps:
• The Electricity (Amendment) Decree 1998 and the NEPA (Amendment) Act 1998 were passed, terminating the monopoly status of NEPA and inviting private sector participation in the electricity sector.
• The Electric Power Reform Implementation Committee (EPIC) was inaugurated by BPE and resulted in FEC approving the National Electric Power Policy in September 2001, which recommended: • • • Establishment of a sector regulator.
Privatization of the electric power sector A market trading design and new rules, codes and processes 6
Milestones Achieved ( Passage of Electric Power Sector Reform)
• In March 2005 the Federal legislature passed the Electric Power Sector Reform Act. The Act outlined the framework of the reform as follows: • Unbundle the state owned power entity into generation, transmission and distribution • Provide for the transfer of assets , liabilities and staff of NEPA to PHCN and then to successor generation, transmission and distribution companies • Create a competitive market for electricity services in Nigeria • Set up an independent regulator 7
Milestones Achieved ( Implementation of EPSR Act )
• NEPA was transformed into PHCN Plc as a holding company for the assets, liabilities, employees, rights and obligations of NEPA. The process of incorporation of PHCN was concluded on 5 th May 2005; • NCP by an Order published in a Federal Gazette gave 1 st July 2005 as the initial transfer date of assets, liabilities and staff of NEPA to PHCN; • NERC was inaugurated in October 2005 as the sector regulator 8
Milestones Achieved ( Implementation of EPSR Act )
• In November 2005, 18 New successor Companies comprising of 6 generation companies, 1 transmission company and 11 distribution companies were incorporated; • The Market Rules to guide the operations in the electricity industry were approved in 2008 (NERC).
• Liquidation Committee established on April 12, 2011 to seamlessly wind down the operations of PHCN 9
Milestones Achieved ( Implementation of EPSR Act)
• Relevant market codes (Grid, Distribution, Performance, Metering etc) have been issued ; • Companies to carry on the role of bulk trading in transition and liability management have been incorporated as Nigeria Bulk Electricity Trading Co Plc and Nigerian Electricity Liability Management Company (NELMCO) ; 10
Milestones Achieved ( Implementation of EPSR Act )
• Rural Electrification policy developed by the Bureau was approved in 2006 and the Agency established but operations suspended in 2009; • Working With PTFP to articulate operation of agency post privatization • On 1 st July 2006, the assets, liabilities and staff of PHCN were transferred to the successor companies, thereby granting the latter greater operational autonomy 11
Current Status Currently, the sector reforms are proceeding along several fronts
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Privatization of the PHCN Successor Companies
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Revision of Tariff Order and other Regulatory Issues
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Commercialization of the Gas-to-Power sub-sector
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Resolution of Labor related issues
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Establishment of NELMCO
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Engagement of a Management Contractor for the Transmission Company of Nigeria
• • • • • •
Establishment of Bulk Trader PPA, Vesting Contracts Shareholders and Concession agreements Securitization Prepare incentives Improve Commercial Certainty in the Electricity Market REA
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Current Status ( Privatization)
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Beginning in December 2010, the Bureau of Public Enterprises, under direction from the National Council on Privatisation, re-started the privatisation of the PHCN Successor Companies.
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The Requests for Expression of Interest were followed by a series of Road Shows to promote the transactions. Road shows were held in:
• Lagos, Nigeria • Dubai, United Arab Emirates • London, Great Britain • New York, United States • Johannesburg, South Africa •
BPE received and evaluated 331 EOIs in response to the RFEOI
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Current Status ( Privatization) Why Simultaneous Privatisation of DISCOs?
• Each DISCO should be financially viable • Multi-Year-Tariff-Order (MYTO) has been designed to raise enough revenue from DISCOs to fund other areas of the value chain like: • Gas or fuel supply; • Whole electricity generation costs; • Transmission charge • System and market operation charges; and • Regulation charges • Total cost required to ensure viability of the entire industry has been computed and shared among all the distribution companies 14
Current Status ( Privatization) Why Simultaneous Privatisation of DISCOs?
• The sharing of the total cost of the industry among all distribution companies ensures that consumers are made to pay the least cost possible in order to serve them • If any distribution company is not contributing its share of the total industry costs, the undesirable implication is that the extra cost will either be borne by government, or shared among other consumers resulting in unfair and inefficient cost allocation • Shortfall in revenue occasioned by inefficient one or more discos will ultimately undermine the reform programme by pulling down companies that are operating efficiently, since they will not be able to bear the extra cost 15
Current Status ( Privatization) Why Simultaneous Privatisation of DISCOs?
• Sale of Discos has been designed to ensure that all discos are potentially attractive to investors.
• This is because, under MYTO, investors will be allowed to earn the same rate of return on their investment, no matter which Disco they buy into.
• Each Disco will have its own tariff that will reflect the cost of serving customers efficiently in that area. However the other costs as enumerated above will be the same per unit for each Disco. What will differ are the distribution costs which are unique to each Disco 16
Current Status ( Privatization) Why Simultaneous Privatisation of DISCOs?
• Where a Disco is not sold in the first attempt, it will be offered to the successful bidders in other Discos, or possibly to reserve bidders in other Discos. Mechanism has been designed by our advisers for inclusion in RFP.
• This will ensure that no Disco is left behind, and also minimize the budgetary intervention that may be required of government.
• Transitional subsidy to avoid rate shock is currently under consideration by NERC.
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Current Status(Revision of Multi-Year Tariff Order)
• NERC commenced a process to review the tariff regime in the electricity sector with a view to making tariffs cost reflective and commercial.
• NERC has finished a valuation of the sector assets, and obtained 5-year CAPEX and OPEX figures for Successor Companies.
• Revised 15-year tariff order will be released in the final week of May, 2011.
• Public consultation on the revised tariff will take place in the 1 st week of June 2011.
• We are working closely with NERC on the matter 18
Current Status(Commercialization of Gas-to-Power Sub-Sector)
• The Federal Government of Nigeria has authorized new pricing for the gas sector. This will result in gas prices in the sector reaching export-parity by 2014 • The Gas Aggregation Company of Nigeria has been formed with a view to guaranteeing the supply of gas to gas-fired generators in the electricity industry.
• Draft agreements (Gas Network Code, Gas Transport Agreement, Gas Sales Agreement) have been prepared for use by industry participants.
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Current Status(Resolution of Labor Issues)
• The Federal Government of Nigeria, has commenced negotiations with representatives of the Labor unions in the electric power sector • Alhaji Hassan Sunmonu engaged as the negotiator/conciliator for resolution of labor issues • • The first round of discussions were held on 16 – 18 May, 2011.
The negotiations are to yield agreements on the following issues: • • • • Pension liabilities Salary arrears for PHCN workers Access to PHCN assets for core investors and government advisors for privatization program.
The final round of negotiations will be held in July 2011 20
Current Status( Establishment of NELMC0)
• • • • • BPE established NELMCO Operationalised to assume and administer stranded debts, receivables, contracts and non-operational assets of PHCN Preparation of accounts to determine liabilities and categorization of assets and liabilities commenced Liquidation Committee of PHCN established to transfer all sector liabilities after a comprehensive accounting and financial audit of the sector to NELMCO.
The establishment NELMCO is to ensure that when investors are in place they would not be encumbered by any liabilities 21
Current Status(Engagement of a Management Contractor)
• 5-Year Management Contract is proposed and Management Contractor to oversee the entire TCN operations including Market and System Operations.
• Management Contract will bring required skills necessary to manage System and Market Operations in a liberalized market .
• Work with World Bank to resurrect earlier transaction process that resulted in short listing of: • ESB International, Ireland • Manitoba hydroelectric Board, Canada • • Power Grid, India Negotiations concluded to engage British Power International as advisers • Discussions advanced with Africa Finance Corporation on creation of Transmission Network Development Fund 22
Current Status (Establishment of Bulk Trader )
• The Bulk Trader has been incorporated • The Bulk Trader will negotiate power purchase agreements on behalf of the distribution companies (Discos) with existing generation licensees (SCs and IPPs) and with potential new entrants into the power generating market.
• Bulk Trader transactions will be supported by a Partial Risk Guarantee to be provided by the World Bank and backed by the Federal Government • Our team of advisers (Nexant) have submitted a report that articulates the responsibility, organizational structure and recommended staffing levels of the Bulk Trader • We are working with FGN to inaugurate the Board and Management of the bulk trader 23
Current status (Contractual agreements for the sector)
• PPA and Vesting Contracts are designed to be bankable.
• We are working with our advisers to ensure that the contracts are executable before investors are selected to take over the Successor Companies • We are working with NERC to incorporate information from the MYTO into these contracts 24
Current Status (Securitization)
• The electricity tariff regime is expected to be cost reflective and guarantees a reasonable rate of return on investment.
• Securitization or credit enhancement/support arrangements in the early stages of the transition will help to build investor confidence in the sector The WB Partial Risk Guarantee (PRG) will provide credit support to the Bulk Trader as it enters into PPAs with successor generation companies and IPPs.
• Similar World Bank PRGs are being put in place for existing and proposed gas supply agreements through the Nigerian Electricity and Gas Improvement Programme (NEGIP).
• For the WB PRGs to be operational the Bulk Trader has to be operational and licensed by NERC which we are working tow ards 25
Current Status (Prepare Incentives)
• Working with the Ministry of Finance, other government agencies and CPCS to come up with robust incentives for potential investors • A cocktail of incentives are proposed to further encourage national and international investors • Existing incentives like streamlined Pioneer Status, Capital Allowances, Investment in Infrastructure , Repatriation of Profit, Import Duty Waiver on Machinery and Equipment, & Guarantee against Expropriation already exist and would need to be • Other incentives being considered are Indemnity against pre existing liabilities, Investor Tax Credits, Umbrella Tax Holiday for Successor Companies, • When finalized, NCP and Presidential approval will be required • Approved incentives to encourage investors will be lodged in the data room 26
Current Status (Improve Commercial Certainty in the Electricity Market)
• The Market Rules set out three stages for market development ( Pre Transition, Transitional and Medium Stages) • The Market Operator (MO) & Systems Operator (SO) and all market participants need to adhere with the Market Rules and the Grid Code • Ineffectiveness of the SO and MO identified due to the existence of metering gaps and lack of a comprehensive ICT-robust settlement system (A transitional settlement system is to be provided by one of our development partners pending when the Management Contractor comes on board.
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Current Status (Improve Commercial Certainty in the Electricity Market)
• An inadequate database for the entire sector continues to present challenges.
• NERC, has set up a Transition Stage Steering Group, pursuant to its statutory mandate in EPSRA to ensure the creation and promotion of efficient industry and market structures.
• The Steering Group is comprised of representatives of all public and private sector stakeholders.
• We are working closely with NERC to ensure all outstanding conditions precedent to the commencement of the Transition Stage are identified and implemented.
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Current Status ( REA)
• The REA was established by Section 88 of EPSRA to provide expansion of the grid to rural areas • It is funded by contributions by eligible customers, as defined by the act, and licensees. NERC determines the contribution rates.
• The REA is in a comatose state due to change in FGN policy to transfer the activities of REA to state and Local Governments • Potential investors raised concerns that privatized Discos are unlikely to immediately roll out electricity access to rural communities.
• We are working with PTFP and NERC to revive the REA and streamline its operations post-privatization.
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Conclusion
• The ambition of the FGN is to meet the vision 20: 2020 target of 40, 000 MW which requires an investment in power generating capacity alone of at least US $3. 5 billion per annum for the next 10 years.
• In addition, large investments will also have to be made in power transmission and distribution.
• Since the FGN cannot accommodate the cost alone, the banking sector can play a fundamental role in mobilizing financial resources for the short and long-term sustenance of the power industry 30