15 January 2013

Nigeria: PHCN Privatisation - NERC Indicates Preference for All-Round Know-How

The Nigerian Electricity Regulatory Commission (NERC) has again indicated its posture on a "fit and proper" management takeover of successor companies created out of the Power Holding Company of Nigeria (PHCN) by various preferred bidders in the yet to be concluded privatisation programme.

NERC in a guideline it released to determine fit and proper entities and persons engaging in electricity undertaking in the Nigerian Electricity Supply Industry (NESI) stated its intention to ensure that every operator in the NESI has the requisite financial and technical capability to deliver on its license obligations.

The guideline, which was obtained by THISDAY in Abuja has been approved by the board of the Commission and will be presented this week to operators in the NESI for adoption and immediate operation in line with the Electric Power Sector Reform Act (EPSR) Act, 2005 which also requires utilities that have strong technical and financial capabilities to efficiently and effectively generate, distribute and transmit electricity to end-users in Nigeria.

Accordingly, contents of the guideline stipulates that both individuals and corporate entities engaging in the business of power within the NESI would have to meet up with certain far-reaching requirements that cuts across financial, technical and managerial competence.

Parts of the guideline however read inter alia: "The following are the required competencies for corporate entities desirous of engaging in electricity business and individuals holding key management positions. Technical capacity:Corporate Experience: (for example, size of plant operated, loss of load probability undertaken, customer base, Aggregate Technical Commercial & Collection (ATC&C) loss reduction, etc.) and must have a comprehensive and realistic long-term Investment plan.

Financial capacity:sources of funding, share capital contribution, foreign or local must be verifiable, free from encumbrances and not of illicit sources. Applicant must show capability to raise required funds to finance project, financing plan must be realistic and consistent with expansion/investment plans and return on equity and liquidity which existing corporate applicants must demonstrate positive return on equity and favourable liquidity ratios."

On legal and regulatory, it stated thus: "Entity must provide the certificate of incorporation along with Memorandum and Articles of Association showing that the entity is incorporated to undertake electricity business, must provide a list of all its affiliates being companies in which it holds 10 percent shares and above and must not have any history of significant regulatory non-compliance."

The guidelines also requested applicants to show evidence of Technical Services Agreement (TSA), Share Purchase Agreement (SPA) and Letters of Intent as a way to establish sustainability of its business while harping on enduring corporate governance practice.

"Affiliates must not be engaged in other aspects of electricity undertakings except the one for which it was issued a license unless otherwise approved by the Commission.

Executive board members shall have a minimum tenure of five years renewable for another term of five years only, non-executive board members shall not be restricted to a definite number of years, minimum number of board members shall be five out of which one shall be an independent director, executive directors shall meet minimum qualification indicated in Schedules 1 and 2 while non-executive directors must either have a minimum qualification of a university degree in any discipline and five years relevant experience.

Directors shall undergo annual training relevant to their duties as directors and to the sectors in which their companies are licensed. NERC will require licensees to submit training plan for directors," it further stated.

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