Guardian Anxiety as deadline for payment for electricity utilities ends Wednesday WEDNESDAY, 21 AUGUST 2013 00:00 FROM EMEKA ANUFORO (ABUJA) AND ROSELINE OKERE (LAGOS) NEWS - NATIONAL • Buyers pledge to pay 75% balance • Reserved bidders may take over WEDNESDAY is the deadline for the preferred winners of the country’s electricity distribution companies to pay the required 75 per cent balance amid anxiety over a seeming impasse between government and the buyers. The buyers last week gave strong indications that the date would not be possible, urging government to consider a further shift. Going by the pleas tendered by the buyers, delay in labour settlement makes the matter more serious, as lenders who had hitherto given them assurances of mobilising funds are now skeptical. In a twist to its earlier stance, the Roundtable of Distribution Companies (Discos), a body of private investors, said Tuesday that it was working to ensure compliance. Its Chairman, Dr. Ransom Owan, told The Guardian Tuesday that efforts were being made to pay up. On its part, the Bureau of Public Enterprises (BPE) said on Monday that it would not extend today’s deadline for the payment of the outstanding 75 per cent of the bid prices for the successor companies of the Power Holding Company of Nigeria (PHCN) by the preferred bidders. BPE said if they failed to pay by 5.00 p.m. today, they would lose the bids, while the reserved bidders would be invited to take over the assets. The Head of Public Communications at BPE, Mr. Chigbo Anichebe, said the agency did not have the power to extend the payment deadline. His words: “The BPE does not have the power to extend the deadline. It is the National Council on Privatisation (NCP) headed by Vice President Namadi Sambo that has the power to do that. This means that the council will have to meet on Wednesday to extend the deadline; but as I speak, I am not aware that such a meeting has been called.” Anichebe said government would abide by the terms and conditions in the purchase agreement. He said that as at Friday, August 16, a total of 20,304 of the 40,000 members of staff of PHCN had been cleared and paid their severance benefits, totalling about N119.1 billion. Meanwhile, Ministry of Power sources said the government had rounded off the payment of severance benefits of workers of 10 power generation companies (GENCOs). A source said the payment was completed on Friday. The payment for distribution companies started two days ago (Monday), The Guardian was told. The entire payment system, sources said, would be rounded off within the next one or two weeks, much later than the August 21 contentious date. The government’s side is still considering if it should hold a stakeholders’ meeting before August 21. The new owners told The Guardian that they had not been communicated any notice for a meeting on the issue, neither had any new date been communicated to them since Tuesday when they met with Power Ministry officials. The leader of the group of new distribution companies’ preferred bidders, Owan, told The Guardian earlier at the weekend that since government had not completed labour liabilities, the thing to do was to shift the balance payment deadline until that had been achieved. He said: “We understand that severance payment for workers of the generation companies was completed by Friday and that that of distribution companies would commence on Monday. The issue of shift is also pending. Government has not announced a date. If government is unable to make a shift, we are afraid this might portend future challenges for the process. “Again, the buyers were supposed to have access to the utilities for shadow management, but they didn’t. Government should hand over the utilities devoid of any encumbrances.” On other possible ways out of the impasse, he said: “Regarding the fear that government would relax on their pending obligations, perhaps, government can put up an escrow account for 30 days where buyers can put cash and government can borrow on a bridge loan and meet all obligations, then cash out the escrow.” He told The Guardian: “Also, an escrow account can be set up for the 75 per cent payment for 30 days until all the handover conditions are met by the seller, that is, the BPE. Such an action would be fair and in the public interest. The goal is to have a post-sale arrangement to the benefit of all Nigerians.” He went on: “Buyers are concerned that once government collects full payment, it would relax in meeting any outstanding obligations. An escrow payment would be an incentive to conclude a clean handover of assets that are free of all legacy issues. “ On Tuesday, private investors who emerged preferred winners premised their inability to meet up with their payment obligations on the lingering issue of payment for electricity workers. The government had earlier expected the new owners to pay their balance earlier enough to enable it use the funds to offset the severance benefits. But when this was not forthcoming, alternative sources had to be secured, according to government officials. The Disco Roundtable is also asking government to immediately release subsidy funds contained in the Multi Year Tariff Order (MYTO) model for each of the distribution companies to them. They described the electricity sector as an infant industry worthy of nurturing and consider giving them a tax holiday of between five and 10 years and urged further assistance. Owan asked government to conclude all labour issues and meet all conditions precedent before August 21; release subsidy fund contained in the Multi Year Tariff Order (MYTO) model for each of the distribution companies under new owners; fund the Transmission Company of Nigeria (TCN) adequately; issue extended five to 10 years special tax holiday for electricity distribution, similar to the telecoms start-up assistance to mitigate tariff increase and high cost; and extend the longstop date to September 21, 2013 to allow for full satisfaction of all conditions precedent items by government. His words: “It is a condition precedent (CP) that the Discos would be handed over free from all legacy liabilities. Our lenders are mindful of this and are reluctant to approve loans and condition drawdown. Therefore, it is vital for full payment obligations to the current PHCN employees be finalised by the longstop date of August 21, 2013. Lenders expect evidence of these payments before we can draw down on funds to complete our payments. “The Transition Electricity Market (TEM) will herald the start of contractual arrangements in the power sector and the automation of billing and metering operations of the Market Operator in line with the Market Rules. Three CPs remain, metering of the grid interface points; testing of the Market Operators settlement systems and process, and constitution of a Dispute Resolution Panel (DRP). Without the completion of the CPs, NERC cannot advise the Minister of Power to declare the start of TEM. In essence, the industry agreements (power purchase agreements, vesting contracts, and transmission network agreements), which underpin industry revenue, would be deemed illegal and a nullity until the minister makes the declaration. This government policy risk makes it very challenging for the capital markets inside and outside of Nigeria to support our efforts financially.” On inadequate revenue to meet industry payments, he noted: “As at now, the Discos operate at a loss and buyers would quickly deploy their respective turn-business-around plans. However, a cost-reflective tariff, which guarantees a regulated return and covers all industry payments is not yet producing the desired results due to systematic and structural problems. If distribution companies are unable to cover the cost of the energy delivered, then the Bulk Trader, Transmission Company and generation companies, will be adversely affected.” The Ministry of Power, Prof. Chinedu Nebo, who met with the team in Abuja, assured that government was already considering the need to call for a stakeholders’ meeting because of the nearness of the deadline dates. He said the meeting would be convened soon. On some of the issues raised by the group, he said approval had been given that part of the proceeds from the sale of 10 National Integrated Power Project (NIPP) plants, about $1.6 billion, would be used to revamp the TCN and the transmission network and system. He said the request for a new deadline date and tax holiday were issues that could only be considered by the NCP.
Posted on: Wed, 21 Aug 2013 07:24:22 +0000
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