Expected market spin-offs in the form of ancillary services from the ongoing power privatisation, would contribute hugely to the over N1 trillion Nigerian electricity market, BusinessDay has gathered.
The power reform exercise, according to industry watchers, is expected to bolster investors’ confidence in the electricity generating and distribution industries, thereby encouraging capital investment into the sector.
Expectations are rife that with the success so far achieved, ancillary companies which will service the industry will come on stream. Informed sources told BusinessDay that there are foreign companies interested in building transformers, electricity meters, as well as cables, to strengthen the power sector, but that they are watching on the sidelines to see how the reforms play out.
Confirming the development, Eyo Ekpo, commissioner, markets, rates and competition, NERC, observed that the electricity market would see huge growth in the coming years.
“The foreign investors are just waiting to see if the government would successfully complete the exercise, and the level of transparency involved,” a source told BusinessDay.
The coming on of the foreign companies would also complement the efforts of local companies that are struggling to stay afloat.
“It is being expected that local companies may be partnered and recapitalised for efficiency,” another industry source said.
Currently, there is high demand for pre-paid meters in the country but because they are not produced locally, they are in short supply
A major upside to recent developments and which may be interesting to investors, is the reduction in the level of revenue risk by the distribution companies (DISCOs), a situation that signals a better future for the industry.
Eyo indicated that the ongoing privatisation of the nation’s power sector would help to meet
the electricity needs of over 60 million Nigerians who do not have access to the facility.
He further stated that some of the DISCOs have been able to achieve considerable reduction in losses, especially those arising from payment and technical risks.
“Losses are now being reduced significantly by some of the DISCOs. About six of them are already showing potential in terms of revenue, and they will drive the speed at which the Discos will come to the capital market.
“Eko Distribution Company has reduced losses by 75 percent, followed by Ikeja Disco, 65 percent and Abuja Disco, 60 percent,” he added.
The other risks he highlighted were construction, fuel supply, transmission and political risks.
It would be recalled that on March 21, 2013, the Bureau of Public Enterprises (BPE), said all the preferred bidders for the 15 Power Holding Company of Nigeria (PHCN) successor companies had met the deadline for the payment of the mandatory 25 per cent of the offer value of their bids, a milestone in the country’s efforts to end crippling power shortages.
Nigeria’s power utility company, PHCN has been unbundled into 18 successor companies including 11 distribution companies, six generation companies and one transmission company, with a view to encouraging private sector participation and attracting foreign and local investments into the Nigerian power sector, to ensure economic and reliable electricity supply.
The Federal Government is expected to net a minimum of $2.24 billion (about N51.68bn) from the sale of companies carved out of the PHCN.
Already, the core investors in 15 of the successor power companies had paid $559.45million, representing 25 per cent of the total sum, which the government is expecting from the sale of the 15 power companies.
The remaining 75 percent of the bid sums from the core investors is $1.68bn, which is expected to be paid within the next six months.
On February 21, this year, the BPE, on behalf of the Federal Government of Nigeria, and the 14 preferred bidders for 15 of the 17 companies created out of the PHCN, executed Share Sale Agreements and Concession Agreements.
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