7 November 2012

Nigeria: Banks in Hot Pursuit of Investors to Fund Power Assets

Ever since the National Council on Privatisation (NCP) unveiled the 14 companies selected as preferred bidders for the generation and distribution companies under the power privatisation programme, banks in the country have been in hot pursuit of the prospective investors to finance the acquisition of the power assets, THISDAY has learnt.

Investigations showed that nearly all the banks, led by First Bank of Nigeria Plc (FBN), Zenith Bank Plc, United Bank for Africa Plc (UBA), Fidelity Bank Plc and Skye Bank Plc, have been falling over themselves wooing the bidders and offering them mouth-watering proposals to fund their acquisitions.

Financing of the distributing companies (Discos), THISDAY gathered, is attracting more interest from banks than the power generation companies (Gencos) because of their direct interface with customers and as such, could generate high returns and pose a lower risk to the banks.

On Monday, last week, NCP had shortlisted Amperion Power Distribution Company Limited, Transnational Corporation of Nigeria Plc Consortium, CMEC/Eurafic JV Consortium, Mainstream Energy Solutions Limited and North-South Power Limited as the preferred bidders for the power stations being sold by the Federal Government to core investors.

For the distribution assets, NCP had shortlisted Integrated Energy Distribution & Marketing Company Limited, Vigeo Power Consortium, Interstate Electrics Limited, KANN Consortium Utility Company Limited, Aura Energy Limited, West Power & Gas, 4Power Consortium, Sahelian Power SPV Limited and New Electricity Distribution Company (NEDC) as preferred bidders.

Following the unveiling of the bidders, the Chairman, Technical Committee of the NCP, Mr. Atedo Peterside, had further announced the payment terms, saying "the highest ranked bidder for each generation or distribution company would be required to post an additional bid security in the form of a letter of credit or bank guarantee for fifteen per cent (15%) of the transaction value within fifteen (15) business days of notification from the Bureau of Public Enterprises (BPE)".

"Within fifteen (15) business days after signing of the Sale and Purchase Agreement, the Shareholders' Agreement or the Performance Agreement, whichever is earlier, or at a mutually agreed earlier time, the bidder shall make a down payment of 25 per cent of the share purchase price.

"Within six (6) months after signing of the Sale and Purchase Agreement or the Shareholders' Agreement, whichever is earlier or mutually agreed upon time, the bidder will be required to pay the outstanding seventy five per cent (75%) of the share purchase price to complete the transaction," he added.

In line with Peterside's clarification, the bidders were notified in writing of their selection last Friday, which a BPE source explained that this means that they have till November 23 to submit their bank guarantees.

"If they fail to meet the November 23 deadline, the previous guarantees that the bidders had submitted would be called in by the BPE," he said.

Confirming his bank's interest in funding the power transactions, Managing Director/Chief Executive Officer, Fidelity Bank Plc, Mr. Reginald Ihejiahi, who spoke on the phone to THISDAY yesterday, said his bank has been very active in the privatisation of the power assets, adding, "Basically, we are capable of financing the deals."

He explained: "If you look at the Akute Power Project, it was solely financed by Fidelity Bank. The operator was Oando and the off-taker was the Lagos State Water Corporation.

"The second one we did was Island Power at Marina, the operator was Negris, sole financier was Fidelity Bank and the off-taker were various companies. So with these, we are basically ahead in terms of financing of the power sector."

Also, Group Managing Director/Chief Executive Officer, UBA, Mr. Philips Oduoza, said: "We will be financing both the generation companies and the distribution companies."

However, commenting on the likelihood of funding the power assets acquisition from the Power and Aviation Intervention Funds (PAIF), Director, Corporate Communications, Central Bank of Nigeria (CBN), Mr. Ugochukwu Okoroafor, said the fund was not created to support the acquisition of the power assets.

He explained: "The PAIF was simply a fiscal measure meant to stabilise the system and that contributed to the improvement in power supply today.

"So I don't think it is something that was meant to fund the acquisition of power assets."

He said the apex bank would not compel banks willing to finance the asset acquisitions to offer facilities at concessionary rates to the core investors.

"This is something that involves the entire country and not just the CBN. It involves the Federal Government and multilateral agencies. So it is something that the central bank alone cannot decide," he added.

On his part, Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said the firms should be allowed to use the best financing option available to them.

"The most important thing is that these transactions must go through for the interest of Nigeria," Rewane said.

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