INVESTMENT OPPORTUNITIES IN THE NIGERIAN POWER SECTOR REFORM

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INVESTMENT OPPORTUNITIES IN THE NIGERIAN POWER
SECTOR REFORM

• Ms. Bolanle Onagoruwa,
• Director General
• Bureau of Public Enterprise

Investment Forum, Corporate Council on
Africa 10th March 2011
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Outline

• Introduction
• Objectives of reform in the Sector
• Reform process
• Reform Institutions and Roles
• Role of Private Sector
• Strategy for Increasing Private Sector
  Participation
• Update on the Privatisation Program
• Challenges

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Introduction

• Estimated 100 million Nigerians are without
  access to electricity.
• Remainder receive low or irregular supply
• Total installed capacity is about 8,663 MW
  (excluding about 4,775 MW under construction.
• Available capacity about is about 4842 MW
• 0ver 35 billion dollars of investments required
  in the next 5 years
• Average energy delivered per employee (GWh/staff)
  of 0.66
• 30 percent of electricity billed not collected

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Introduction

• Current Average power generation is 3,200MW

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Objectives of reform

• Increase electrification
• Ensure cost reflective tariffs
• Attract private sector investments into sector
• Create competitive electricity market
• Increase electrification
• Investments in new power generation facilities
• Rehabilitate existing power generation facilities

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Objectives of reform

• Attract private sector investments into sector
• Privatization of state-owned interest in electric
  power utilities
• Attract Independent Power producers and Oil
  companies into power generation.
• Ensure cost reflective and competitive tariffs
• Through Multi Year Tariff Order
• Create competitive electricity market
• Entry point competition for new generation
  ensures affordable prices for consumers
• Transparent regulatory framework and clear market
  rules

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Reform Process

• The Electric Power Reform started in 2000 with
  the inauguration of Electric power Implementation
  Committee.(EPIC)
• The National Electric Power Policy document was
  approved by the Federal Government in 2001
• NEPA was vertically unbundled into generation,
  transmission and distribution in 2004
• The Electric Power Sector Reform Act became law
  on 11th March 2005
• 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 5th May
  2005
• NCP by an Order published in a Federal Gazette
  gave 1st July 2005 as the initial transfer date
  of assets, liabilities and staff of NEPA to PHCN

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Reform Process

• NERC was inaugurated in October 2005 as the
  sector regulator
• In November 2005, eighteen 18 New successor
  Companies comprising of 6 generation
  companies, 1 transmission company and 11
  distribution were incorporated
• The Market Rules to guide the operations in the
  electricity industry was approved in 2008.
• Relevant market codes (Grid, Distribution,
  Performance, Metering etc) have been issued
• Companies to carrying on the role of bulk trading
  in transition and liability management have been
  incorporated as Nigerian Electricity Liability
  Management Company (NELMCO) and Bulk.

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Reform Institutions and Roles

• Market operations
• - To oversee the market and commercial
  arrangements
• System operations
• - Overseeing dispatch and grid control
• Nigeria Electricity Liability Management Company
• - To manage legacy liabilities and stranded
  assets
• Nigeria Electricity Bulk Trading Co Ltd
• - Created as a Special Trader with bulk purchase
  and resale licence
• - Manage existing PPAs and new procurement of
  power in the transition

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Reform Institutions and Roles

• Electricity Management Services Ltd
• - Carry out consulting services and provide
  shared services, such as logistics and meter
  testing.
• National Power Training Institute of Nigeria
• - Provide world class training to support the
  utilities manpower.
• Overall broad policy formulation resides with the
  Federal Ministry of Power
• NERC carries out regulation and market
  surveillance
• NCP/BPE drives the reform and liberalization of
  the power sector.

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Role of Private Sector

• The Power Policy 2001 and Electric Power Sector
  Reform Act 2005 identified the Private sector as
  the key driver for the future of NESI
• The government is to primarily provide, policy
  and independent regulation.
• The private sector is expected to provide
• Investments
• Managerial capacity
• Technology and
• Competition

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Role Cont.

• To achieve government objectives, the private
• sector is expected to
• Acquire interest or take over existing assets in
  in the sector.
• Develop green field projects

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Strategy for Private Participation

• Full implementation cost recover structures
  through MYTO
• Credit enhancement schemes such as
• Industry securitization arrangements
• Partial risk guarantees
• Regulatory certainty( through the reconstitution
  of NERC).
• Creation of an electricity market and
  implementation of market rules.
• Massive government investment to strengthen the
  grid, including gas infrastructure.

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Strategy

• Nigeria Bulk ElectricIty Trading Company Limited
  (NBETCO) is set up to manage orderly procurement
  of IPPs in the transition.
• Gas Supply and Transportation agreements being
  signed under a sector template developed by Gas
  Aggregation Company of Nigeria.
• Performance improvement benchmarked against the
  MYTO assumptions.
• Successor companies to operate commercially to
  improve sector sustainability.

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Private Participation

• Private participation in the sector may be either
  in green-field or brown filed projects.
• The privatization program will proceed along
  government approved timelines and policies.
• Private participation in existing assets will be
  through, asset sale, core investor sale,
  management contract and long leases (concession).

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Privatisation Strategy
Privatisation Strategies

• 51 Core Investor Sale

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Objectives of Privatisation

• Principal objectives of Disco Privatisation
  include
• Improving efficiency by increasing collections,
  reducing technical and non-technical losses and
  reducing costs
• Increasing access to electricity
• Improving infrastructure through private sector
  investment
• Ensuring fair tariffs to all end-users
• Increasing commercial viability of the power
  sector
• Improving customer service

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Companies to be Privatised

• PHCN Successor Generation Companies
• 4 Thermal Generation Plants
• 3 Hydro Plants (2 Hydro Power Companies)
• PHCN Successor Distribution Companies
• 11 Distribution Zones covered by 11 Distribution
  Companies

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Companies to be Privatised
Thermal Power Generation Companies Ugheli Power
Plc
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Companies to be Privatised
Thermal Power Generation Companies Geregu Power
Plc
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Companies to be Privatised
Thermal Power Generation Companies Afam Power Plc
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Companies to be Privatised
Thermal Power Generation Companies Sapele Power
Plc
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Companies to be Privatised
Hydro Power Generation Companies Kainji / Jebba
Power Plc
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Companies to be Privatised
Hydro Power Generation Companies Shiroro Power
Plc
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Disco Privatisation Process

• Structure of Disco Privatisation
• Disco Investor / Operator selection will evolve
  through 3 key stages
• Expressions of Interest
• Technical and Commercial Bids
• Two Step Bid Evaluation
• Technical
• Commercial

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Disco Privatisation Process

• Expression of Interest (EOI) Disco Schedule
• EOI submission closed March 4, 2011
• EOI evaluation has commenced.
• Pre-qualified bidders will be required to sign a
  confidentiality agreement and to pay a 20,000
  fee for each disco of interest.
• List of pre-qualified bidders will be made
  available.
• Interested investors will be encouraged to join
  prequalified firms either financial investors or
  technical partners

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Disco Privatisation Process

• Request for Proposal Stage Key Requirements
• Pre-qualified bidders will receive an Info
  Memorandum and Request for Proposal
• Bidders will be given access to physical and
  e-data room.
• Bidders will be able to carry out physical due
  diligence
• Bidders will be issued with draft copies of the
  Multi-Year Tariff Order (MYTO)
• Bidders are encouraged to submit comments on MYTO
• Bidder comments on MYTO will be subject of
  conference to be organized by sector regulator
  (NERC)

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Disco Privatisation Process

• Request for Proposal Stage Requirements
• Bidders will be required to submit a proposal
  showing their ATCC loss reduction programme for
  the first 5 years
• The ATCC loss reduction proposal will be based
  on the final MYTO issued by NERC
• The efficiency levels assumed by NERC in MYTO
  will be the minimum bench mark
• The value to be placed on each distribution
  company will be determined in line with the MYTO
  issued by NERC
• Bidders will know in advance how much they are
  expected to pay for acquiring 51 equity of each
  company
• Bidders will also be required to submit a
  security deposit

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Update on the Privatisation

• Transaction Advisers appointed
• Advert for Expression of Interest in 11
  distribution companies on the 13th of December
  2010.
• Road show organized in Lagos, Dubai, London, New
  York and Johannesburg
• Submission will close on the 4th of March 2011
• DISCO privatisation will focus on reduction of
  ATC losses
• Engagement of management contractor for TCN is
  currently on.
• Sale of non-operational assets in Ijora, Calabar
  and Oji still in progress

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Concluding Remarks

• The reform for of the power sector presents
  enormous investment opportunities.
• Nigeria has put in place investment friendly
  initiatives including
• Foreigners can own 100 of investment
• Guarantee against expropriation of investments
• Repatriation of profits guaranteed by law
• Generous tax incentives
• One of the highest ROI in the world

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Concluding Remarks

• Huge local market (population of 150million)
• Access to the West African sub-regional market
• Cheap but skilled labour
• Nigeria has embarked on extensive sectoral
  reforms and institution of legal/regulatory
  conducive to PSP for both existing facilities and
  for new investments

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For further details.Electric Power Sector
DepartmentBureau of Public Enterprises234

• www.bpeng.org/power