Electricity companies from Canada, India and Ireland are the final bidders to take over the management of Nigeria's national grid, a contract likely to be awarded by the end of the year, a top official said on Friday.

Manitoba Hydro, owned by the Canadian province of Manitoba, India's Power Grid Corp (PGRD.BO) and Ireland's Electricity Supply Board (ESB) are the final bidders to manage the transmission grid in Africa's most populous nation.

"I can tell you that we expect to finalise everything and hand over by the end of the year," Bart Nnaji, head of a presidential taskforce charged with reforming Nigeria's power sector, told Reuters.

President Goodluck Jonathan on Thursday unveiled a blueprint for ending chronic power shortages in sub-Saharan Africa's second biggest economy, a plan which financiers say could unlock billions of dollars of private sector investment..

Under the strategy, Nigeria will privatise electricity generation and distribution. It will continue to own the national grid but its management will be privatised.

Despite producing more than 2 million barrels per day of crude oil, Nigeria relies on diesel generators to power everything from phone chargers to luxury hotels because of constant power outages which are a major brake on growth.

Jonathan's plan, unveiled less than five months before elections are due to be held, is the most comprehensive yet designed to solve the nation's power problems.

Previous privatisation efforts, most recently of former state telecoms monopoly NITEL, have been a failure and investors say the roadmap for reform will need to be backed up by cast-iron guarantees on the regulatory framework.

What appears to be a final solution to the epileptic power supply in the country was unfolded yesterday as government approved the steps for the sale of 11 power firms.

The firms are to emerge out of the Power Holding Company of Nigeria (PHCN). This is coming as the government expressed deep concern over the high aggregate technical, commercial, and collection losses suffered in the course of electricity generation and distribution in the country.

At present, a large volume of electricity generated by the PHCN hardly gets to the final consumer due to technical reasons, including defective transmission and distribution lines, while billions of naira is lost every day due to the inability of the power company to collect accumulated revenues from debtor consumers, including government institutions.

But as part of the strategy approved last week for the core investors in the 11 power distribution firms created out of the PHCN, the National Council on Privatisation (NCP) underlined the need for prospective bidders to demonstrate capacity to curb these losses.

How to move the sector forward

The selection of bidders, the privatization agency said, must not only be on the basis of “efficiency improvement - reduction of Aggregate Technical, Commercial and Collection (ATCC) losses that they would achieve over a five-year period, but also that the preferred bidder “yields the highest net present value in terms of consequential benefits.”

The privatisation council, chaired by vice president, Mohammed Sambo, noted that the current ATCC losses, estimated at between 40 and 50 percent of the electricity distributed through the various power distribution companies, is unsustainable and must be halted if the country’s electricity industry is to be attractive for full private sector participation..

Under the proposed strategy, private sector operators are free to acquire controlling equity interest in any of the distribution companies with a view to rapidly improving its operational efficiency, while bidders would be allowed to bid on the basis of a trajectory of technical, commercial, and collection loss improvements capacity, unlike the traditional transaction approach where bidders merely bid on price for the equity shares.

The proposed method would be built around the Multi Year Tariff Order (MYTO) issued by the Nigerian Electricity Regulatory Commission (NERC), which establishes the commercial and economic indices and the financial model for the entire electricity industry.

As part of the 2001 Electricity Power Sector Reform (EPSR) initiated by the government, the PHCN Plc was in November 2005 broken into 18 new successor incorporated companies, consisting of six power generation companies (GENCOS), one transmission company (TRANSCO), and 11 distribution companies (DISCOS).

States can generate power

Apart from approving a minority equity interest for state governments interested in participating in the privatisation of the distribution companies, the privatisation council also approved the privatisation strategy for some of the generation companies and their assets.

They include the sale of PHCN non-operational assets located at Ijora, Calabar, and Oji River plants, with the divestiture method approved for the sale of Sapele Power Plc, Afam Power Plc, and Ughelli Power Plc, while Kainji Hydro Power Plc and Shiroro Hydro Power Plc are to be privatised through the concessioning process.

Sixty-eight firms comprising foreign and local investors with interest in diverse sectors of the economy, as at last week, were said to have so far shown strong intention to do business at the Lekki Free Trade Zone (LFTZ). They cover textile, oil and gas, tourism, real estate, cottage industries, construction, car assembling among others.

Although some listed above will come on stream later as the project develops and expands, however, how soon others will roll into action will depend on the magic that the Lagos State government and its development partners — a consortium of Chinese investors can perform between now and November 2010 when the first phase, according to the management will be opened for business operations.

The first phase of the multi-billion dollars project sits on over 3000 hectares with a huge infrastructural challenge. It is being developed by a group of Chinese firms in partnership with Lagos State. And so far, work on the development of critical infrastructure such as power plant, sewage systems, water treatment plants though ongoing is still a challenge.

Although the Chinese are the first partners in the development of the trade zone, the state government is still keeping its doors open for more investors especially in view of the huge financial outlay. It is estimated that the overall project will cost over five billion US dollars.

“The Chinese are the first set of developers we have in the zone to jump-start things. And we are currently developing the launch area (phase 1),” Olusola Oworu, special adviser to Lagos State government on commerce and industry, whose office supervises the developments told BusinessDay.

As a way of attracting investors, the government is offering a number of incentives including tax exemption. Also, companies to operate within the zone could be 100 percent foreign owned and would be allowed the option of repatriating their capital and profits overseas if they so chose. In terms of meeting up the requirements for setting up a business in the zone, the state government plans to put in place a one-stop-shop where all necessary procedures and processes leading to business registration as well as issues bordering on immigration, customs, safety and security of investments and personnel will be addressed in one fell swoop so as to facilitate smooth operations.

In the view of Oworu, the LFTZ has been conceptualized not just a trade zone but a model city. So apart from its industrial component, the trade zone is designed to embrace urban developments, which include residential accommodation, business centre, a financial hub and tourism activities. The zone therefore is incorporating light industries such as textiles, electronics, household equipment as well as foods and beverages.

Upon full development, the zone will have three modern ports which will accommodate heavy industries like petro-chemicals and oil refineries. It is also going to have five kilometers of coastline a deep seaport that will be able to accommodate huge vessels expected from around the world.

The idea is to make the ports the shipping hub of West Africa. Also being planned to further boost LFTZ’s operations is an international airport that will be sited not too far. The airport will not ferry people but also service the logistical needs of corporate bodies in and around the Lekki corridor.

The Lekki trade zone’s key advantages are its accessibility, location and the market. Lagos State remains the commercial hub of Nigeria and plays host to about 65 percent of the country’s commercial activities. The state has the largest population in the country estimated at about 18 million people which is a good market for products and services.

Oworu says the effort at ongoing infrastructural development at the trade zone is show of government’s determination to create the enable environment and prepare investors to start off with ease. 68 prospective investors have so far shown interest. But the biggest of the challenge I think are logistics problems. But we have investors who have shown strong interests in oil and gas, manufacturing, hotels and entertainment, car assembling plant, construction materials and real estate development.

“Currently our emphasis is on development of infrastructure to encourage investors to come in. And when I say infrastructure, I am talking about road network and power. To start with, we have installed 1000 KVA generating set to power the area in the interim. A permanent power installation will come later and we are working towards this.

“In terms of road, we have constructed about several kilometres of roads and a standard factory so that investors can start making use of it without having to necessarily build theirs before starting operations,” says the special adviser.

Adeyomo Thompson, deputy managing director of the LFTZ is optimistic that business operations will commence by October or before the end of this year. His optimism is hinged on the completion of some road networks creating access to various parts of the zone, provision of 1000 KVA standby electric generating set as well as the completion of a standard factory from where some manufacturing activities can begin. According to the deputy managing director, the long delay in take-off has been due to problems of logistics. Specifically, he says the absence of infrastructure at the site, a major challenge, is being addressed with over 70 companies now waiting to commence operations.

The companies are those with interest in agro-processing, clothing and textiles, food and beverages, forestry, mining, pharmaceuticals, housing and tourism. He said that the establishment of the free trade zone was in line with the desire of the Lagos State Government to harness investment and business potentials in the state. “Although the project is currently not ready for use as a result of inadequate infrastructure, there are indications that some industries from China may begin operation here soon,’’ he said.

Thompson said that the first phase of the project would cost about 1.5 billion dollars while the entire project would gulp over five billion dollars. He said that the zone would have its own independent power plant, adding that the first phase, made up of 350 hectares, would be powered by 10,000 KVA generators. But it is not only foreign companies that are in the forefront at the zone, as Oando Nig. Plc, according to Thompson, is planning to build a refinery with capacity to refine 360,000 barrels of crude per day. The company has since 2009 carried out feasibility studies on the project.

“We believe that a refinery that targets approximately half of the deficit for 2017 will be viable against local production and against substitute input. Such a refinery will benefit from the closest sources of crude oil. We are going to put in place a complex refinery which will take advantage of the light crude we see in the area and maximise PMS production,” Thompson said, adding that the company upon commencement of operations would be targeting about 360,000 barrels per day as the first phase will do 340,000 barrels which will give an approximate of 15,000 tons per day of PMS.

However, Femi Deru, President of Lagos Chamber of Commerce and Industry, has applauded the adoption of Public- Private Partnership to attract investments, describing as a popular and viable option. He believes the zone will attract investments when infrastructure such as good network of roads, power, sewage and water treatment plants are completed and put to use.

Although government has paid compensation to some of the communities whose lands were taken over for the project, indigenes of the area are still of e view that all those entitled to compensation must be adequately compensated so to avoid a crisis situation and frosty relationship between the operators and their host communities.

A resident of the area, Rueben Ateteh advised the state to pay all outstanding compensations to families that were displaced. “If this issue of compensation is conclusively resolved, the state government and the investors may be shooting themselves on the foot because frequent agitations could lead to disruption of operations. “We all have seen what happened in the Niger Delta area. This should be avoided in Lagos.

But the infrastructural challenges and logistics problems notwithstanding, Oworu and Thompson are optimistic that business operations will commence at the free trade zone this year and Lagos economy will witness some boom on full operations.