March 18, 2014

Tough times await buyers of PHCN assets


problematic assets, faulty evaluation


Buyers of the assets of the defunct Power Holding Company of Nigeria’s, (PHCN) are in for tough times in the days ahead.
A former Chief Executive Officer, Nigerian Electricity Regulatory Commission, NERC, Mr. Ransome Owan, disclosed that the assets are problematic, while a faulty valuation system was used in the sales process.

Owan, who disclosed this in a document obtained by Vanguard, titled, ‘Operation and Maintenance (O&M) issues in the privatised power market’ said the transaction leading to the sale of the assets was based on government asset valuation and not a business valuation.

He further stated that the business turnaround plans tendered during the bid round require re-examination based on facts discovered.
He disclosed that the privatised businesses are full of problems including the support systems, both from within and without.

According to him, the key challenge is how to turn the business around to profitability, including abundant regulatory, technical and non-technical issues.
On the part of the power generating companies (GENCOs), Owan, noted that the gencos fair a bit better because of their smaller footprint and fewer employees, noting however, that plant readiness, scheduling and dispatch frequency and capacity payments are concerns.

He questioned the capacity of the Nigerian Bulk Electricity Trading Plc (NBET) in terms cash sufficiency, saying, “Does the central wholesale buyer, NBET, have sufficient cash even with 90-day Letter of Credit (LC)?”
He noted that evacuation challenges and ability to meet ready and suppressed demand will linger, while proper Revenue Cycle Management (RCM), metering, billing and collection challenges are here to stay.

Other problems facing the sector, according to him, include meeting loss trajectories (LTs), lack of power, unmet vesting contract supply or quotas, change integration and management, culture wars, fear by retained staff, insider financial manipulations, unknown consumers, poor payment culture and theft.

He predicted mass retrenchment in the power sector, saying that the privatisation exercise will bring about a workforce re-balancing between technical and non-technical staff.
Owan further disclosed that dependency on vesting contracts alone would lead to slow progress, stating, however, that engaging in direct purchase of power from embedded generators at approved competitive rates would accelerate progress to 24 hours, seven days a week power supply.