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.
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