Concerns over Sapele GENCO’s fate in PHCN assets privatisation

powerplant-geregu

Privatisation of major power assets, spearheaded by the Bureau of Public Enterprises (BPE), has been largely successful, culminating in the sale of six generating companies and 11 distribution companies, but some grey areas remain to be addressed, experts and others have said.

For example, an expert, Dr. Katch Ononuju, pointed to what he said was the “fraudulent bending of the rules and shifting of the goal post in the middle of the game to satisfy certain powerful interests even when their demonstrable technical abilities and competence have been called to question.”

While criticizing BPE and National Council on Privatisation (NCP) for “undermining their own rules, in the case of the Enugu DISCO and Sapele Generation Company (GENCO),” Ononuju who is also a stalwart of the People’s Democratic Party (PDP) lamented that “the signal being sent with the mishandling of these two transactions was capable of eroding confidence in the entire power privatization exercise.”

In a panel discussion on Monday, he said: “It costs reputable and serious bidders about $2million to do a proper due diligence and bid preparation on a power asset, and if you start undermining the rules in the middle of the game for selfish reasons, then serious bidders will be discouraged from participating further. And we are doing this just for the initial phase of the process, which we envisage will get Nigeria ’s generating capacity to 40,000 megawatts of power by 2020. So what we are doing now is small compared to what has to be done to get Nigeria to that target. Our international partners who have come to participate in this with us today will not have confidence in anything we are doing tomorrow.

“A person who failed technical evaluation and failed to make payment before the August 21 deadline has been given Enugu DISCO. On Sapele GENCO, the preferred bidder, who failed to make payment even after almost 2 months after the deadline elapsed has not been disqualified. What we are saying is that if power works in this economy every other things will follow. The only thing that will make the economy to grow the way it should is adequate power.

“In the case of the Sapele and Enugu Disco what we are saying is that the government should not just give it out to anybody just because you want to give it to your friends. In the case of Sapele, somebody bid $201million but is unable to raise the money to pay for it even after almost two months. How then can they raise the required funds to refurbish the plant? Why have they not been disqualified, and why has the Reserve Bidder not been invited to pay for the asset according to BPE’s rules so that Nigeria can move on to get the power capacity that it so badly needs? Why are the BPE and NCP Constantly bending their own rules in order for to benefit the Preferred Bidders who have proved incapable of providing the power for which the assets are being privatized in the first palce? It is fraudulent because things are not being done according to the rules that were set to ensure transparency and it is morally and ethically wrong.”

Ononuju, however, praised the government for having the political will to privatize the assets, saying: “I am really happy about the privatization of power assets because it shows that we have the political will to change the country for the better. What we are doing represents the largest public sale of power assets anywhere in the world. That shows the political will to do the right thing is there. There are societies that even where there are quality publicly held assets it is still difficult to privatize. It shows that we are agreeing in a way to devolve power from a unitary center into to its constituent units. But transparency must be upheld.”

After some initial delay and some uncertainty, the NCP a fortnight ago finally approved the payment of the remaining 75 percent of 14 out of the 15 bidders for the acquisition of the 15 Power Holding Company of Nigeria (PHCN) successor companies.

Rising from its sixth meeting in the year, the NCP  approved the late payments by North South Power and Interstate Electric Limited for Shiroro Power Plc and Enugu Distribution Company Plc respectively but subject to the late payment penalty as provided in clause 12.20 on interest for late payment and clauses 5.5, 5.5.1 and 5.5.2 of the Share Purchase Agreement (SPA).

According to reports, the NCP had previously approved the payments of the 12 companies which made payments on or before the August 21 due date. They include Amperion Power Co. Ltd (Geregu); Transcorp/Woodrock (Ughelli); Integrated Energy Company (Ibadan); NEDC/KEPCO (Ikeja); Vigeo Power Ltd. (Benin); Aura Energy Ltd. (Jos); Integrated Energy Company (Yola); Mainstream Energy Ltd (Kainji).

Others are West Power & Gas (Eko); Kann Consortium (Abuja); 4Power Consortium (Port Harcourt); and  Sahelian Power SPV Ltd. (Kano).

However, the Council referred the case of CMEC/EURAFIC consortium, the preferred bidder for Sapele Generation Company who had paid only $119,887,156 out of their $201,000,000 bid consideration to the Office of the Attorney General of the Federation and Minister of Justice for advice. It was gathered that there were potential legal issues which needed to be resolved.

Another expert who did not vwant to be named said: “Of particular interest is the inability or reluctance of CMEC/EURAFIC consortium, the preferred bidder for Sapele GENCO to fulfill payment terms binding its successful bid. It has emerged that the company started developing cold feet after it realizedthat it had grossly over bided by its $201,000,000 million bid, which is far higher than the reserve price to $106 million and JBN-NESTOIL $106.500 million which automatically made JBN-NESTOIL the reserve bidder. Government reserve price was pegged at $106 million dollars. Faced with the difficult task of raising the funds to beat the August 21 deadline for the payment of balance 75percent, the company developed cold feet and consequently failed to make any payment but only managed to pay a total of $119.8million after the deadline had lapsed. Two clear months after the expiration of August 21 deadline, CMEC/EURAFIC consortium is yet to make whole its bid.

“Information shows that banks are unwilling to provide funds for CMEC/EURAFRIC to pay the balance of its bid because it grossly overpriced the asset, and it would be difficult for them to raise the additional funds to rehabilitate the asset. Our sources also revealed that the sale of Sapele GENCO may result in a law suit, which may leave the asset in limbo.”

And another source said: “The inability of CMEC/EURAFRIC to make complete payment was referred to the Minister of Justice and Attorney General of the Federation for legal advice after the NCP meeting refused to ratify the transaction. But the issue appears straightforward since BPE’s bid rules are very clear. Firstly, CMEC/EURAFIC consortium won the bid for Sapele GENCO with its $201 million dollars bid and became the preferred bidder. Secondly, the company failed to honour the August 21 payment deadline for the payment of the balance 75% of its bid offer. By that failure, the consortium breached the stipulations of the key industry document buyers or investors signed on the 21st of February 2013.  The consortium cannot be allowed to pay anything less than its bid amount. It cannot be given an indefinite time frame to raise payment. For nearly two months now it has been unable to raise the funds to pay for the Sapele asset, but still has not been disqualified. This means the rules are being bent simply to benefit personal interests.

The source added: “But the big question on the lips of many observers of these recent developments is that companies that have shown a profound lack of capacity to raise the requisite bid money to purchase the power assets cannot be trusted to be able to raise working capital and funds to rehabilitate and upgrade the assets. It is against this background that government should stick firmly to the rules and enforce it to the letter. The interest of a few cannot be allowed to supersede the over ridding interest of the nation or the transparency of a process largely adjudged as free and transparent. Nigeria should remember that the reason for privatizing the power industry is to increase the country’s generating capacity, and not to raise money from asset sales. Let us stick to the rules and do the right thing for our country.”

 

Information from The Guardian was used in this report.

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