VIEWS: 4 PAGES: 21 POSTED ON: 7/30/2012
Attracting Private Investment in the Power Sector The Perspective of the Nigerian Government Reform Agency Nasir Ahmad el-Rufai Director General Bureau of Public Enterprises, Nigeria Thursday 1st November 2001 Three Questions – One Reality Attracting private sector investment in the electric power sector: Why do we need private investment ? How do we attract private investment ? How does the government manage the process ? Public policy requires trade-offs – technocrats advise, politicians decide. Why do we need private investment? National Electric Power Authority (NEPA) Under-funded, under-maintained, mismanaged power utility Supply and demand imbalances : Installed capacity of around 5,900MW, maximum load ever recorded was 2,470 MW – demand estimated at 10,000MW in 2005 and 20,000MW in 2010 Transmission lines are radial and mostly overloaded, switch gear is obsolete and transformers overloaded, and have not been maintained Overall transmission and distribution losses around 40% Collections less than 50% of power generated (theft, corruption) Power outages cost our economy $1bn per annum (2.5% of GDP) Heavy capital investment required to meet this need ($ billions) Financial pressures on FGN and inability of government managers to allocate resources efficiently mean: there is no sustainable choice but to seek private investment in the medium term How to Attract Investment ? Conditions Precedent: Appreciation of issues and constraints Clarity of policy - clear sense of direction Regime of incentives and will to sustain them De-monopolization and enactment of market-friendly legal framework Establishment of independent regulatory system Clear regulations and regulatory framework Clear, transparent licensing and competition rules Privatization of state-owned enterprises National Electricity Policy Approved by Cabinet on March 28, 2001. Key policy objectives include: Short to Medium Term to ensure a system of generation, transmission, distribution and marketing that is efficient, safe, affordable and cost-effective throughout the country; to ensure that the power sector attracts private investment both from within Nigeria and Overseas and; to promote competition to meet growing demand through the full liberalization of the electricity market. Long Term to ensure that electricity supply is made more reliable, economically efficient and equitable so as to effectively support the socio-economic development of the country; to minimise government guarantees for privately funded investment and; to ensure that subsidies are effectively targeted. Transition Stage (1999 – 2003) Focus on getting the following conditions right: Electric power policy Regime of incentives Legal and regulatory framework Establish and staff independent regulator Open up the sector - corporate restructuring and unbundling of NEPA by creation of several gencos, transco and discos Privatization of all thermal and hydro plants to private operators Concessioning of management, ownership and control of selected distribution companies Privatization of transmission company and system operator Legal/Regulatory Framework Robust framework is critical for creation of certainty and investor confidence Focus of the last two years has been on building this framework Electric Power Sector Reform Act currently before National Assembly Expected passage end December 2001 Provides for: transfer of assets and liabilities to successor companies and their eventual privatisation development of competition in pre- and post-privatisation market licensing regime providing for investor-friendly license modification, renewal and revocation clear definition of the role of the Ministry – policy matters only establishment of Nigerian Electricity Regulatory Commission (NERC) Electricity Regulatory Commission Establishment on passage of the Power Sector Reform Act Fully autonomous and independent body 7 full time Commissioners with staggered five year terms Commissioners to be appointed by the President, but President must select from short list of three names for each vacancy submitted by independent selection committee Detailed selection criteria for selecting Commissioners to published in Official Gazette President cannot remove Commissioners unless exceptional circumstances – corruption, insanity, etc. Commission shall be funded largely through licensee levies Abuse of use of funds to be tackled by the Anti-Corruption Law. Sector Liberalization Have embarked on the process of restructuring and unbundling in order to instil competition, mobilise private capital and take advantage of recent technological advances. Unbundling process will involve: the separation of transmission and dispatch from generation; the establishment of a transmission company; the establishment of a number of competing, privately owned generation companies from existing NEPA generating facilities; the opening up of generation to new market entrants – IPPs and MPPs, amongst others, and; the establishment of a number of distribution and sales (marketing) companies which will also be privatised. Corporate Restructuring - Plan TASK TASK 1 OUTPUT Information gathering and OUTPUT electricity sector review TASK 2 TASK 4 TASK 7 TASK 5 TASK 3 Review Human Technical and of fuel sources for Legal Financial Resources Environmental power generation review review review review TASK 6 TASK 7 Market Design Financial Modelling TASK 8 Development and assessment of structural options and initial recommendations Further Consultation understanding of and workshops the issues and TASK 9 new results Final recommendations on structure and full detail on the new companies Overall Overall Proforma Proforma Investment Asset HR Staffing Legal summary, summary, accounts, accounts, Investment needs and Asset inventory Power Power HR Staffing and Legal and Environmental Environmental final structural final structural needs and balance sheets 10 year financial balance sheets inventory and Trading Trading and Retrenchment and Contract Audit Audit recommendations, recommendations, & capital & capital 10 year financial projections and allocation Arrangements Retrenchment Arrangements Plans Contract Issues & rationale & rationale structure by BU structure by BU projections allocation Plans Issues Post-Restructuring Structure IPP IPP G1 G2 (existing) (new) KEY PPA PPA D : Distributor EC : Eligible Customer G : Generator IPP : Independent Power TRANSCO/SO SPE Producer PPA : Power Purchase Agreement SO : System Operator SPE : Special Purpose Entity TRANSCO : Transmission D1 D2 D3 EC Company Post-Restructuring Market Rules Electric Power Sector Reform Act Licences issued by NERC GENERATORS TransCo (TSO) DISTRIBUTORS MPA Market Rules and Grid MPA Code SPE MPA ELIGIBLE MPA CUSTOMERS MPA = Market Participation Agreement – Bilateral Contractual Relationship between Participant and TSO Medium Term (2003 - 2007) Partial privatization of generation companies Competition among generating companies Energy trading between generation and distribution companies (primarily on the basis of bilateral contracts) Payment of full price by generators for natural gas and other fuels Sale of energy by companies generating power in excess of the needs of Discos Partial privatization of distribution companies Medium Term – Sector Structure IG1 IG2 IPP1 IPP2 IPP3 TRANSCO/SO ID1 ID2 ID3 EC KEY ID : Independent Distributor IG : Independent Generator EC: Eligible Customers Full Competition (2007+) Well developed wholesale market with formal membership rules/procedures Optimal operation of generation, transmission and distribution companies Full privatization of distribution, transmission and generation companies Economic pricing of electricity to cover full costs of supply Reasonable risk-adjusted rate of return on capital Opportunity for large industrial consumers to choose their suppliers Full retail sales competition and full privatization thereof. Managing the Reforms - 1 Trade-offs Key challenge is how to plan and implement sector restructuring while trying to meet urgent needs for power and new investments by private sector Creation of panic by State-Owned Enterprises to attract treasury support – the more we gave, the less efficient funds were used. Impact of IPP’s requiring long-term contracts with fixed returns based on availability and security arrangements on implementation of medium to long term restructuring imperatives Need to avoid uneconomic long-term IPP arrangements that burden the treasury while at the same time encouraging IPP development – choice is MPP – the Enron Story. Managing the Reforms - 2 Restructuring and overall reform is an evolutionary process that will take many years to complete: 1999-2000 – Electric Power Policy 2000-2001 – Electric Power Sector Reform Act 2002-2003 – Establish and Staff NERC, Unbundle NEPA 2003-2007 – Privatization of entities unbundled from NEPA Policy makers tend to underestimate the complexity of, time needed for, and expense of an efficient power sector reform process – estimate of USD 15 million, over 8 years Fortunately, political will to fulfil the reform programme exists in Nigeria and must be sustained (both President and Vice President are political champions of power sector reform) Managing the Reforms - 3 Establish the right management framework to manage both policy dialogue as to the right approach and to manage actual implementation Overcome bureaucratic hostility and inertia Create an empowered agency to coordinate the activities and balance the interests of key stakeholders: National Council on Privatisation/BPE Ministry of Power and Steel NEPA Donor Agencies Hire the best advisers: Legal and Regulatory - Cameron McKenna, Andersen Restructuring – PricewaterhouseCoopers, PB Power Privatisation – to be decided in 2002. Managing the Reforms - 4 Stakeholders – need to contend with entrenched interests, manage real fears and expectations: General Public Little hostility due to decrepit state of the existing utility Comprehensive communications masterplan to carry the people along Labour Treatment of surplus labour must be fair, principled and equitable Challenges include: Balancing conflicting objectives – NEPA managers, employees, entrenched interests and Unions Determining likely redundancy numbers and benefit payments Designing cost-effective retraining and deployment schemes Conclusion The Nigerian power sector reform programme is well underway Key focus of the programme is the need to attract private investment A well designed and comprehensive programme to attract private investment is in place With sound management of the process we are sure to succeed Feel free to email us for further information: email@example.com Nelrufai@bpeng.org Elrufai@aol.com Thank You!
Pages to are hidden for
"Why power sector reform?"Please download to view full document