TEXT OF A SPEECH DELIVERED BY THE DIRECTOR GENERAL, BUREAU OF PUBLIC ENTERPRISES (BPE), MR ALEX A. OKOH AT THE PRESS BRIEFING ORGANISED BY BEDC ELECTRICITY PLC IN RESPECT OF CLARIFICATION OVER LICENSING MATTERSAT BEDC HEAD OFFICE, BENIN ON WEDNESDAY NOVEMBER 21, 2018.
Gentlemen of the Press,
I am delighted to be with you today to dialogue and provide a better understanding on the issues relating to the privatisation of the Electric power sector in Nigeria and specifically the licensing and sale contract relating to the 11 distribution companies (Discos), including the Benin Electricity Distribution Company, which serves the franchise areas of Delta, Edo and Ekiti States.
This briefing has become more necessary, given recent happenings in this franchise area and especially given the fact that my agency, The Bureau of Public Enterprises midwifed the privatization of the PHCN successor companies about five years ago. We have followed the developments in the Benin Distribution Company (Benin Disco) with keen interest and indeed the attention of the Bureau has been drawn to certain erroneous information over the purported renewal of the licences issued to The Discos, including the BEDC Plc for the purpose retail distribution of electricity.
In fact we understand that the Edo State Civil Society Organizations (EDOSCO) planned a protest from Monday, 29th October till Wednesday 31st October in Benin, purportedly to dissuade the Federal Government from renewing the operating licence of BEDC after the five year assessment period of the performance agreement, and also to protest the extension of its executive management employment contract. The BPE on behalf of the Federal Govt wishes to state categorically that there is nothing ongoing in terms of contract or license renewal for any of the Distribution Companies (Discos). We appreciate that given the fact that the power sector has emerged recently from being a public utility to a private sector operated utility, It may be pertinent to reflect a little on the power sector reform to enable all and sundry appreciate what we have on hand.
You would recall that The power sector reform commenced during the former administration of President Olusegun Obasanjo, GCFR shortly after the return of the country to democracy. Prior to this initiative, the power sector had witnessed a lack of investment for over 30 years with the resultant effect of a decaying and dilapidated infrastructure and poor supply of electricity. The investment requirement of the sector was carefully indentified, and the financial commitment was determined to be in the range of an annual minimum of about US$3billion, something the federal budget simply could not handle. Thus government chose to liberalize the sector through a carefully worked out reform programme that was captured in the Nigerian Electricity Policy which designated the private sector as the driver of the reform in the power sector. The idea being that the private sector could deploy more creative ways to mobilize requisite investment funds and management expertise to resolve the challenges in the sector.
To this end, the policy was transformed into the Electricity Bill and passed in the year 2005. The implementation of the Act saw to the unbundling of the Power Holding Company of Nigeria (PHCN) into 11 Distribution companies, 6 generation companies and 1 transmission company. The Generation companies (Gencos) were either concessioned (hydros) or privatized (thermal) while the transmission company has remained a government company even though it was operated briefly by a management contractor. The Discos on the other hand were privatized through the sale of majority shares (60%), to the private sector to enable them turn around the operations of these companies.
The programme borrowed largely from the Indian and Brazillain models and was fashioned to operate based on the need to address the huge losses in the sector thereby improving efficiency. It was on the basis of this that the Discos signed the Performance Agreement along with other covenants to consummate the sale transaction. However, in order to capture the context in which the performance agreements were signed, it would be expedient to explain that the process of reform and privatization was carried out with provisional estimates, given the fact that actual loss levels could not be ascertained at the time of hand over to the private investors due to a variety of reasons.
Thus the final figures were to be provided after the core investor operators had settled in and adequate and actual data became available. The final figures were obtained late October 2014 and communicated to the relevant stakeholders. These actual baseline figures were accepted and consequently adopted to derive the tariff that became operational in January 2015. So according to the requirements of the Performance Agreement, January 2015 became the start date for the calculation of the performance review period for the Discos, which essentially means that the fifth year anniversary date for the review of the performance agreement will be December 31, 2019 and not November 1, 2018.
I have had to take a walk through history to explain some of the issues around the operations of the Discos to allow us better appreciate the background to where we are now. So permit me at this juncture to clarify the difference between a performance agreement review and “what has been purported as a review of the operating license of the Disco. Under the sale agreement, the Discos and BPE are bound by a Performance Agreements (PA) which stipulates the milestones that the core investors should achieve within a specified period. These milestones are expected to be reviewed periodically with new ones set after the review, On the part of the Discos, a major component of the performance expectation is the reduction in Aggregate Technical and Commercial losses (ATC&C) i.e reduction in electricity distributed without requisite remuneration or financial compensation.
This agreement is monitored periodically, but reviewed wholistically in 5 years, and the due date for the wholistic review is December 31, 2019. The issue of licensing is a different matter and is handled by the NERC. It is also useful to note the provisions of section 62 of the Electric Power Sector Reform Act 2005, which provides that any person intending to engage in the business of electricity generation, transmission, system operation, distribution or trading shall be required to obtain an operator’s license from the Nigerian Electricity Regulatory Commission. The relevant sections are quoted as follows: “In the exercise of the powers conferred on it by Section 32(1) (d) of the Electric Power Sector Reform Act 2005 and all other powers in therein, the Nigerian Electricity Regulatory Commission (NERC) hereby gives notice to all its licensees, prospective investors, stakeholders in the electricity industry and members of the general public on the interpretation of sections 71(10) and 72(1) of the ESPR Act 2005 with regard to the tenure of its licenses….. Section 71(10) also provides that “a license shall be valid for a period of up to but not exceeding ten years, provided that the Commission may extend the period of a license taking into account the nature of the undertaking or business, for an additional period not exceeding five years at a time it determines that it is in the public interest to do so’’.
In relation to the above, all distribution companies sold were thus also required to acquire the NERC license in addition to purchasing the privatized company and its assets. For BEDC, there is an existing 15years NERC license (broken into 10years plus 5year), with an another 10years renewal option at the end of the 15 years period i.e license of up to 25years. Naturally, there are also statutory and regulatory obligations which are conditions for the grant of the license by NERC to the Discos, which NERC is responsible for monitoring. The above proviso serves as clarification on the position of licensing of a Disco, which is the responsibility of NERC and which is different from the Review of the performance benchmarks of the Discos which is the responsibility of the BPE. I have had to Make the effort to explain the issues around the operations of the Discos not only to dispel the rumours and innuendoes around the revokation or otherwise of the operating licenses of Discos but more importantly for us to appreciate and understand the structure, challenges and the policies being adopted to position the power sector to deliver effectively on this vital public utility. Permit me to mention that government has been working with its international partners to reposition the power sector and Benin Disco in particular has benefited from the services of international institutions like the USAID, aimed at getting the best electricity services to the people of Edo state in particular and indeed the entire franchise area of BEDC. This government respects contracts and would not do anything to jeopardize the operations of companies that the FGN had willingly entered into agreements with, including the Discos.
At this juncture, I would like to appeal to the civil society groups, residents and all stakeholders in the Benin Disco area to exercise restraint and allow the company perform its functions of Electricity distribution without let or hinderance. I wish to assure you that the government is pursuing a comprehensive power sector recovery program that will address the challenges of the sector many of which are faced by, but not peculiar to the Benin franchise area. We hope that very soon, we shall be able to put many of these challenges to rest.
Gentlemen of the Press, I thank you for listening.
Alex A. Okoh
Director General Bureau of Public Enterprises