9 July 2012

Nigeria: BPE Denies Undervaluating PHCN Assets

Abuja — The Bureau of Public Enterprises, BPE, has lambasted the two major unions in the electricity industry over allegations of gross undervaluation of the Power Holding Company of Nigeria, PHCN, by the Bureau.

A statement signed by Mr. Chukwuma Nwokoh, Head, Public Communications at BPE, noted that the claim by the labour unions was incorrect and does not reflect the liabilities of the PHCN estimated at over N310 billion.

President, Senior Staff Association of Electricity and Allied Companies, SSAEAC, Mr. Bede Opara, had claimed that if the assets were valued at over N200 billion, then the workers should be allowed to buy the successor companies created from the unbundling of PHCN with their severance benefits.

On his own part, Mr. Joe Ajaero, General Secretary, National Union of Electricity Employees, NUEE, gave a plethora of assets --buildings, parking lots, power and distribution transformers, associated accessories like towers, insulators of different sizes, poles of different sizes, armoured cables (different sizes), conductors of shapes and sizes, and other accessories including vehicles of various brands and capacity-- that should be included in the valuation of the successor companies.

According to the BPE, "it is apt to clarify that the over N200 billion to be realised as privatisation proceeds is in respect of 60 per cent equity in the 11 distribution companies and does not include the proceeds to be realised from the sale of the generating companies."

It noted that it was obvious that the key objectives of privatisation of PHCN had been lost on the labour unions in PHCN.

"For the umpteenth time, we restate the objectives of PHCN privatisation to include improved efficiency by increasing collections, reducing losses and reducing cost; improve access to electricity."

"It will also ensure investment from the private sector to improve infrastructure; ensure fair tariffs to all end users, and increase commercial viability of the power sector," the statement added.

It noted that historically, revenue from the sale of government enterprises has not been the main reason for the Federal Government's decision to undertake privatisation given that most privatisation proceeds are channeled to addressing labour liabilities.

"It is apt to state that the valuation of the PHCN assets was undertaken by an independent body and the regulator of the electric power industry--the Nigerian Electricity Regulatory Commission (NERC.)

"Indeed, BPE's divestiture strategy for the eleven distribution companies will be primarily based on the use of quality of service/efficiency parameters considered against investment proposals made by bidders aimed at reducing Aggregate Technical, Commercial and Collection (ATC &C) losses over an agreed timeframe."

In addition, it stated, the strategy will be built around the Multi-Year Tariff Order (MYTO.) "MYTO will stipulate the annual investment requirement, allowable operational expenditure, approved rate of return on equity and other allowable expenses for each distribution company."

The BPE explained that the merits of the strategy are that it emphasizes technical, financial and managerial competence of operators; and has the shortest curve for reducing subsidies, guarantees and section payment delinquency.

It added that, "Given Labour's predilection to talk only about assets, it is not surprising that the PHCN labour unions are silent on liabilities which the Federal Government is going to assume.

"It is in that regard that Government established the Nigerian Electricity Liability Management Company (NELMCO), a special purpose entity established for liability management during the reform and privatisation process. It will remain in place until all the liabilities are extinguished. NELMCO has estimated PHCN's indebtedness at N310 billion.

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