Privatization of the power sector will be different in every country, but the qualities of a successful privatization are shared among many nations. In Nigeria, the process began, as many do, in a time of great need, and launched due to political will. Here, one of the project’s transaction advisors presents the timeline and process of reform, highlighting the details of the privatization process that were critical to bringing Nigeria a brighter future.
Historically, Nigeria has operated a state-owned vertically and horizontally integrated electricity monopoly. The National Electric Power Authority (NEPA) was responsible for generation, transmission, distribution, and retail supply. In 1999, the Nigerian Electricity Supply Industry (NESI) reached its lowest point. Of the 79 generating units in the country, only 19 were operational—with average daily generation capacity of 1,750 megawatts. Between 1989 and 1999, no new power generation capacity was added to the power infrastructure. Notably, an estimated 70 percent of the population had no access to electricity, per capita consumption was 125 kilowatt hours, and industry system losses (technical, commercial, and non-payment) were estimated at 50 percent.
It’s no surprise that the system experienced regular collapse, leading to a massive gap between power demand and supply. This was exacerbated by aged and overloaded transmission and distribution networks and excessive over-manning. These bitter experiences prompted the Federal Government of Nigeria (FGN) to embark on a power sector reform program aimed at meeting the growing demand for stable and reliable power.
Once Nigeria’s power sector began moving toward reform, the country’s National Electric Power Policy (NEPP) was adopted in 2001. To provide the appropriate legal framework for the reforms envisaged by the Policy, the FGN enacted the Electric Power Sector Reform (EPSR) Act in 2005. The EPSR Act authorized the unbundling of NEPA into distinct units. The unbundled units, comprising separate generation, transmission, and distribution companies, were held under the Power Holding Company of Nigeria (PHCN).
In August 2010, Dr. Goodluck Jonathan, President of the Federal Republic of Nigeria, unveiled the Roadmap for Power Sector Reform (now known as “the Roadmap”). The Roadmap sent a strong signal that power sector reform and improvement of NESI remained a top priority for the FGN. Consequently, it outlined the FGN’s plan for the acceleration of the pace of activity with respect to reforms mandated by the EPSR Act.
In December 2010, the Bureau of Public Enterprises (BPE), under the direction of the National Council on Privatisation (NCP), commenced the privatization process with the engagement of CPCS Transcom International Limited (CPCS) as transaction advisor. Immediately afterward, a call for Expressions of Interest (EOI) in investing in six successor generation companies and 11 successor distribution companies was published. Following that, a series of roadshows were held in Lagos, Dubai, London, New York, and Johannesburg.
Based on a strong showcase of the opportunities through these roadshows, BPE received 341 EOIs indicating solid interest in the Nigerian power sector from various international and local investors. Following the submission of the EOIs, 207 EOIs were shortlisted, and out of these, 163 bidding entities purchased the bid documents and obtained the eligibility to submit the bids.
Success, step by step
In August 2011, as part of creating a conducive investment environment, FGN formally commenced operations of Nigerian Bulk Electricity Trading Plc (NBET), with the primary objective of bulk purchasing of power from the generation companies and reselling them to distribution companies. Additionally, from March 2011 to April 2012, BPE (with support from CPCS), worked with the key stakeholders including the NCP, Federal Ministry of Power, Nigerian Electricity Regulatory Commission, Gas Aggregation Company of Nigeria, Nigerian Gas Company, Transmission Company of Nigeria, Nigeria Electricity Liability Management Company, NBET, and potential bidders.
This led to issuing the commercially attractive tariff, developing the appropriate contractual structure with allocation of various risks in the right places, and aligning the transaction structure with the objectives of FGN. All of the participants began to appreciate the existing situation of the power sector.
In May 2012, BPE issued the Request for Proposals along with the transaction and industry agreements containing the “entire deal structure” to the eligible bidders. On July 17, 2012, at the close of the deadline for the submission of bids for the Successor Generation Companies, 23 proposals were received for six generation companies. Following evaluation of the bids, all but one of the generation companies (Afam Generation Company) failed to receive a technically qualified bidder. Again, on July 31, 2012, at the close of the deadline for the submission of bids for the Successor Distribution Companies, 54 proposals were received for 11 distribution companies.
Following evaluation of the bids, all but one of the distribution companies (Kaduna Distribution Company) failed to receive a technically qualified bidder. Thus, while 15 of the 17 companies moved ahead with the financial/commercial bidding stage, the remaining two were re-tendered. (Following successful re-tendering process, the relevant agreements with the bidders were executed in December 2013.)
In February 2013, following successful negotiations with the preferred bidders, transaction agreements as well as the industry agreements for all 15 companies were executed. All of these entities successfully paid their acquisition price. In November 2013, the Success Generation and Distribution Companies were handed over to the new owners, concluding the privatization process and launching a promising new era for Nigeria’s power sector.