Nigeria - Government Decentralises Power Distribution to States

Electricity distribution is no longer the exclusive responsibility of the Federal Government as any state that desires to build independent...

Electricity distribution is no longer the exclusive responsibility of the Federal Government as any state that desires to build independent electricity distribution networks within areas not currently served within each distribution franchise is free to do so.
But such venture would require a licence from the Nigerian Electricity Regulatory Commission (NERC) where there would be no delays.

To this effect, the National Council on Privatisation (NCP), chaired by Vice-President Namadi Sambo, has approved that 60 per cent of the shares of a distribution company be sold to core investors to allow state governments participate in the bidding consortia.
It, however, restricted the overall federal and state government shares in such companies to 49 per cent, insisting government would not play any role in the management of the privatised successor companies.
The NCP, at its maiden meeting for 2012 held at the Presidential Villa, Abuja also endorsed that the percentage of equity that state governments hold in a distribution company will, however, be determined through independent valuation of actual investments by the respective states in the distribution network.
The valuation will be determined by an independent agency jointly appointed by the state governments and NERC.
Spokesman for the Bureau of Public Enterprises (BPE), Mr. Chukwuma Nwokoh, said in a statement made available to THISDAY yesterday that the vice-president had also approved that state governments, through reaching an agreement with the relevant distribution company, be allowed to increase access to electricity for their citizens.
The statement said: "The National Council on Privatisation (NCP) has approved that state governments should have the ability to provide for increased access to electricity to their citizens by reaching an agreement with the relevant distribution company whereby the state will make a contribution to the capital expenditure required to rehabilitate and/or expand the network within that state.
"This capital contribution will be secured and repaid on terms agreed with the distribution company. The assets thus acquired will become the property of the distribution company but will be wholly utilised within and for the benefit of the citizens of the relevant state. Furthermore, the state will receive compensation within the ambit of the extant tariff methodology. Excess capital costs, if any, will be borne by the State Government. Any investment by the state will not attract any interest payments by the distribution companies."
It said in light of the economic non-viability of re-delineating the distribution companies along state boundaries, the NCP has also approved that the present privatisation framework of eleven distribution companies created from the un-bundling of the Power Holding Company of Nigeria (PHCN) should be maintained.
In addition the Council also endorsed that workers’ allotment would not exceed a maximum of 2 per cent of the overall shares or 10 per cent of the Federal Government shares in each distribution company – whichever is lower.
The NCP further approved that shareholders’ agreements would be signed between the governments and core investors in each distribution company that would explicitly provide for automatic dilution of any government shareholding where there is a failure to meet payment deadlines.
It stated that states may provide counter-guarantees to the distribution companies to cover shortfalls in payments due from the distribution companies for energy supplied to customers within the territorial boundaries of the respective states.
The NCP had at its meeting on October 31, 2011 deferred decisions on post-privatization shareholding structure of distribution companies pending when an agreement was reached with the state governments.
It had also directed BPE and NERC to make presentations to the meeting of the National Economic Council (NEC) that followed the NCP meeting.
On the basis of the presentations and the attendant discussions, the vice-president and chairman of NEC had constituted an ad-hoc committee on power sector reform to further deliberate on the issues raised and make necessary recommendations to NEC.
Subsequently, the ad-hoc committee chaired by the governor of Cross River State, Senator Liyel Imoke, had met on January 25, 2012 and agreed on the issues in dispute which were eventually approved by NEC on January 26, 2012.
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