PHCN Bid: Govs’ Firm Flouted The Rules – Atedo Peterside

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Chairman, Technical Committee, National Council of Privatisation, Mr. Atedo Peterside, Monday, said the governors’ firm  in the  Power Holding Company of  Nigeria, PHCN, bid flouted the rules.

Reacting to the allegations by the governors of Edo, Delta and Ekiti states that the bid process was fraught with corruption, the chairman said, in a press briefing held in Lagos that, rather, it was the governors’consortium who contravened the rules by submitting two  different commercial bids.

Below is  the full text of Peterside’s statement.

Gentlemen of the Media,

In my capacity as a member of the National Council on Privatisation (NCP) and Chairman of its Technical Committee, I have been directed by the Vice President of the Federal Republic of Nigeria, to call this Press Conference alongside Ms. Bolanle Onagoruwa, Director General of the Bureau of Public Enterprises (BPE). The purpose of this Press Conference is to present the full set of facts surrounding the ongoing power sector privatisation and to counter the very “weighty” allegations that the entire process was “FRAUGHT WITH CORRUPTION”. This allegation was widely publicized because it came out of a discussion/interview which the Executive Governors of Delta, Edo and Ekiti States had with the media on Thursday 18th October, 2012.

The allegations of “CORRUPTION” that I refer to were made with respect to the privatisation of Benin Disco in particular, and the privatisation process of the PHCN Successor Distribution Companies (Discos) in general.

You may recall that BPE immediately issued a short, sharp rebuttal which dismissed the allegations as baseless and completely without foundation. Being so weighty and coming from 3 Governors, whom most of us have phenomenal respect for, the allegations have however continued to generate significant reverberations both locally and internationally.

The 3 Governors appeared to be making their “complaint” because they feared that the Southern Electricity Distribution Company Consortium (Southern Consortium), which they favoured, might be edged out of the race to be declared as preferred bidder for Benin Disco by Vigeo Power Consortium (Vigeo). Obviously they presumed the latter to be the likely winner based on the outcome of the televised Commercial Bid Opening Ceremony which took place in Abuja on Tuesday 16th October, 2012, which event I presided over.

It is pertinent to mention here that the NCP has not even declared a result yet and so no consortium has been announced as being the preferred bidder for any of the 11 Discos in Nigeria. At the end of the Commercial Bid Opening Ceremony, I explained that we still had to subject all the bids to a “material consistency/feasibility test” before making recommendations to the NCP. I would like to reiterate that the purpose of this Press Conference is to present the full facts as we know them and to take questions from the local and international media so that the whole truth can be established.

As you are all aware, the 3 Governors grabbed the headlines in such a dramatic and potentially damaging fashion at a time when the nation is undertaking its largest and most complex privatisation transaction ever and which could raise divestment proceeds of close to N400 billion.

I will now formally list the allegations, some of which I must confess I am still struggling to fully understand. The three Governors, in their Joint Press Conference in Abuja on Thursday, alleged as follows:

1). THAT the bidding process as organised by the BPE on behalf of the NCP leading to the Commercial Bid Opening on Tuesday 16TH October was not transparent and was even “fraught with corruption”;

2) THAT the use of the Aggregate Technical, Commercial and Collection (ATC&C) loss reduction strategy as a Commercial Bid evaluation tool/ranking is opaque, untested and not transparent;

3). THAT Vigeo (the other bidder for the Benin Disco) that emerged with the highest loss reduction target at the bid opening exercise lacked technical competence, experience and financial capability to manage such an extensive territory as covered by Benin Disco; and

4). THAT their States have invested in power production and therefore they wanted the bidder which they preferred to be declared as winner, failing which they would not allow Vigeo to operate in their territory.

The responses are as follows:

1. ON TRANSPARENCY:

The Southern Consortium have been in the race for the Benin Disco alongside other bidders since September 2011 when they received the Request for Proposals (RFPs) for the privatisation. They had ample opportunity to participate in the various investors’ fora that BPE held to communicate with potential bidders and obtain feedback. Following the release of RFPs, Southern Consortium undertook due diligence on Benin Disco, met with various officials of BPE and asked questions that were promptly and comprehensively answered. They never made any allegations of lack of transparency until after the race had been run via the commercial bid opening ceremony, which was televised live on both NTA and AIT.

Atedo Peterside

At the commercial bid opening ceremony, the representative of Southern Consortium was asked to examine and confirm that the envelope that contained its commercial proposal was intact, and he did so on LIVE TV before the envelope was opened. The same process was observed for every other bidder at the event. As the loss reduction targets for each bidder were read out, they were captured on the multimedia screen, and immediately ranked in descending order for everyone to see. All of this was broadcast on live TV.

Before the bids were opened, the ground rules of the bid opening were read out and circulated and it was made clear to all that the ground rules were in accordance with the RFP, which all the bidders were given the opportunity to comment upon and accept before they submitted their technical and commercial proposals.

It is pertinent to point out that Southern Consortium is the only one, of the 16 consortia that participated in the bid opening, to have submitted multiple commercial bids for the same Disco. Their envelope contained two different commercial bids, both of which were signed by a Mr. Matthew Edevbie. The first bid was dubbed the “primary” bid, while the other was dubbed an “alternate” bid. This was a clear contravention of the RFP. We did not make a big issue of this on live TV because both the primary and the alternate bids fell below the bid submitted by Vigeo and so neither bid would alter Southern Consortium’s ranking on the large screen. Instead, this matter was brought to the attention of the Technical Committee of NCP, which considered the breach and made recommendations to the NCP.

Therefore, on the allegation that the bid process was not transparent, I wholeheartedly affirm that the entire transaction followed due process and was governed by the provisions of the RFP.

Incidentally, the submissions made by the Southern Consortium to the BPE show that the ownership of the Consortium is comprised of seven members as follows:-

Uttar Gujarat Vij Company Limited (of India) [25% equity of consortium]; Income Electrix Limited (of Nigeria) [25 %]; Smartworks Global Resources Ltd (of Nigeria)[8.3%]; Pinnacle Power Projects & Services Ltd (of Nigeria) [31.7%]; Fountain Holdings Limited (of Nigeria)[3.33%]; Citadel Nominees (of Nigeria)[3.33%]; and NJ Services (of Nigeria)[3.33%] .

Unless I am missing something, close to 90% of this consortium is therefore owned by private sector companies that are NOT owned directly or indirectly by the Governments of Delta, Edo, Ekiti and Ondo States.

2. CRITICISMS MADE IN RESPECT OF THE ATC&C LOSS REDUCTION STRATEGY

The current ATC&C losses sustained by the various distribution companies in Nigeria are estimated at between 35 and 40 percent of the power wheeled to them. These levels of losses are very high.

The privatisation strategy that the NCP chose for the Discos was aimed at addressing the identified problems within the distribution segment of the sector. Accordingly, bidders were told from the onset that they would compete on the basis of a trajectory of technical, commercial and collection loss improvements for the first five years of operation. Furthermore, this method is built around the Multi Year Tariff Order (MYTO) 2 issued by the NERC—the industry regulator.

It is important to emphasize that ALL the bidders who participated in the Commercial Bid Opening had obtained scores in excess of 75% when technical evaluations were being scored some weeks ago. It is also imperative to point out that the NCP approved the privatisation strategy for the Discos, based on the use of ATC&C loss reduction proposal as a basis for core investor selection, as far back as 11th June, 2010. The advertisements that ran in December 2010 soliciting for Expressions of Interest (EOIs) from prospective core investors emphasised that the BPE would use this strategy. So, Southern Consortium knew the rules of the race before it joined the contest.

It is also apt to point out that even when the BPE solicited feedback from prospective investors about the bid process and the industry and transaction documents last year, Southern Consortium did not raise any concerns about the use of this strategy.

3. ON THE TECHNICAL COMPETENCE AND FINANCIAL CAPABILITY OF VIGEO POWER CONSORTIUM:

Section 93 of the RFP states that:

“Those bidders with Proposals that have successfully achieved the benchmark technical score (75%) will be considered eligible contenders, and the ranking of the bidders for each Distribution Company will be determined solely based on the technically qualified bidders’ Commercial Proposals.”

Three evaluating teams were formed to evaluate the technical bids. Each of the teams had seven members drawn from the following agencies:

1. Bureau of Public Enterprises (BPE);

2. Nigeria Electricity Regulatory Commission (NERC);

3. Federal Ministry of Power;

4. CPCS Transcom – advisers on the transaction;

5. NEXANT—USAID-funded power sector consultants providing support to the BPE; and

6. NIAF—DFID-funded infrastructure support programme to the Nigerian government.

Officials of the Economic and Financial Crimes Commission (EFCC), the Independent Corrupt Practices Commission (ICPC) and Directorate of State Security Services (DSSS) also observed the entire process from bid submission to the conclusion of evaluation. The bids were assigned to the evaluating teams by balloting to ensure that no evaluator had any prior knowledge of which bid he/she would evaluate. Some of the criteria evaluated were:

(1) Experience in operation and maintenance of distribution companies

(2) Experience in developing countries;

(3) Technical and investment plan;

(4) Management and staffing—human resources; and

(5) Financing plan and ability to raise finance.

We state here, in respect of the 20 Disco bidders which NCP approved at its meeting of 18th September , 2012, that they fully met the RFP requirement which specified that in order to have its commercial proposals opened each bidder must have a tangible net worth of a minimum of $100 million and competent technical partners. Incidentally both Southern Consortium and Vigeo had competent technical partners from India.

On the allegation of Vigeo having little knowledge about the environment in which it wishes to operate, this is not and could not logically be a requirement of the RFP since there has never been a distribution licensee in Nigeria apart from the Federal Government-owned distribution companies. In any event, the information at our disposal indicates that GUMCO, a member of the Vigeo Consortium has participated in both the Revenue Cycle Management and National Prepaid Metering programmes since 2006. It also introduced prepaid metering and billing to the Benin Disco. It started from Benin City and later extended its operations to Warri, Asaba, Ondo and Ekiti. It is worth noting that none of the members of the Southern Consortium has such a record.

4. ON BENIN DISCO CONSTITUENT STATES HAVING INVESTED IN THE POWER SECTOR:

We affirm and recognise the efforts of these States, as well as all other States and Local Governments to contribute their quota to the investment drive by the Federal Government in the power sector. Every level of government has contributed and continues to contribute. It should be remembered here that only 60% of the equity of the respective Discos is being privatised.

The balance of 40% will be owned by the Federal Government, the State Governments within that Disco’s territory (through a Special Purpose Vehicle to be created by the States for that purpose) and the staff. The exact percentage that the States will get will vary depending on the valuation of their previous investments. The valuation will be determined by the electricity regulator, NERC, working in collaboration with the State Governments.

In a nutshell, the State Governments will be equity partners with any preferred bidder for a Disco which operates in their territory.

CONCLUSION

This power sector privatisation process has come a long way. Many eminent Nigerians, as well as the international community, have praised the painstaking process that has brought the reforms this far. It is also clear from the foregoing that the adopted processes will accommodate not only the interests of the State Governments but also the workers.

Seeking to rewrite the rules after a game has been played is unacceptable and certainly does not conform to global best practice. Likewise, accusations of corruption which are not based on the provision of an iota of evidence are also unacceptable.

Finally, I wish to conclude by noting that I am amongst those who believe that we cannot grow as a nation unless we challenge the systems that we have put in place. If the systems and institutions of State are as robust and transparent as this power sector privatisation programme has been, then the challenges will be overcome and the merits of the rigorous processes that we have put in place will be appreciated even more by all and sundry. I would only plead that when making these challenges we exercise a little restraint and also buttress our case with hard facts. The intention cannot be to unjustly cast doubts on the integrity of persons who are serving the Federal Republic of Nigeria for little or no reward in some cases.

I thank you for your attention.

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