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The Roadmap for

Power Sector Reform

“The growth, prosperity and national security of any country is critically dependent upon the

adequacy of its electricity supply industry. Indeed the link between electricity supply and

economic development is such that the health of the industry is a matter of deep and personal

concern to all citizens. Nigeria is no exception. Over the past two decades, the stalled

expansion of Nigeria's grid capacity, combined with the high cost of diesel and petrol

generation, has crippled the growth of the country's productive and commercial industries. It

has stifled the creation of the jobs which are urgently needed in a country with a large and

rapidly growing population; and the erratic and unpredictable nature of electricity supply has

engendered a deep and bitter sense of frustration that is felt across the country as a whole

and in its urban centres in particular.”

– The Roadmap for Power Sector Reform

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PRESIDENTIAL ROADMAP ON POWER – A short history .

1) Pre - May 2010

i. The Electric Power Sector Reform Act enacted (EPSRA 2005).

ii. NEPA unbundled into Successor companies with PHCN as the holding company

iii. Nigerian Electricity Regulatory Commission NERC created & later suspended

iv. A multi-billion dollar National Integrated Power Projects ( NIPP) started and later stalled

v. Reform stalls until President Goodluck Jonathan assumes office in May 2010.

1) Post - May 2010

i. President Jonathan chooses Power as one of his cardinal programmes.

ii. The stalled NIPP program resumes in earnest.

iii. President Jonathan inaugurates the Presidential Task Force on Power & the Presidential Action Committee on Power to provide focused leadership of the Reform Agenda.

iv. President Jonathan launches the Nigeria Power Sector Reform Road map in August 2010.

v. NERC Board reconstituted

ROADMAP IMPACT ON SERVICE DELIVERY

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Since 2010 the change in power generated and delivered has been positive

and gradual. This has been purely based on government efforts.

To achieve the levels of performance that Nigerians are demanding and

expecting the baton of service-delivery has to change from public to private

hands. The Sector needs to be REFORMED.

WHAT IS REFORM?

Reform simply means deregulating the Power industry by moving the sector

from the position of government ownership/management of the assets to a

private-sector driven Nigerian Electricity Supply Industry (NESI) in line with

the EPSR Act 2005.

AIMS OF POWER SECTOR REFORM

to ensure a system of generation, transmission, distribution and marketing that is efficient, safe, affordable and cost-reflective throughout the country;

to ensure that the power sector attracts private investment both from Nigeria and from overseas;

to develop a transparent and effective regulatory framework for the power sector;

to develop and enhance indigenous capacity in electric power sector technology;

to participate effectively in international power sector activities in order to promote electric power development in Nigeria, meet the country’s international obligations and derive maximum benefit from international cooperation in these areas;

to ensure that the Government divests its interest in the state-owned entities and entrenches the key principles of restructuring and privatization in the electric power sector;

to promote competition to meet growing demand through the full liberalization of the electricity market; and

to review and update electricity laws in conformity with the need to

introduce private sector operation and competition into the sector.

POWER SECTOR ACHIEVEMENTS

1. MYTO2 tariff successfully launched & operational on 01 June 2012 2. Establishment/operationalizing the Nigerian Bulk Trader 3. Provision of FGN Credit Enhancement to the Bulk Trader 4. Operationalizing of Nigerian Electricity Liability Management Company

NELMCO 5. Reconstitution of NERC to strengthen regulatory regime 6. Ensure that power is steady and predictable

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7. Execute privatization of generation & distribution assets 8. Implement a framework to guarantee increase gas supply 9. Implement the Emergency Gas Plan (short term) 10. Significant progress in Power Sector Reform. 11. Significant reduction in the number of partial and total system collapses 12. Transmission network being expanded with provision made for

redundancy; continuous loop 13. Peak Generation of 4,517.6MW (Highest generation ever in the history

of the country) 14. Successful bidders for 10 DisCos & 5 GenCos & payment of 25% of share

sale amounts – fulfilling all conditions prior to the commencement of negotiations

15. Investors’ confidence evidenced by increased investment & signing of MOUs

16. Manpower development is being pursued aggressively 17. Ratification of Manitoba Hydro/TCN management contract &

announcement of TCN Board 18. Signing of Labour Agreement 19. Over 1500MW in additional capacity added by NIPP generating assets 20. Zungeru Hydro Electricity Power Plant contract finally awarded after 30

years on the drawing board

REFORM OUTLOOK

On the 5th of September 2012, Mr. President reconstituted the Presidential

Action Committee on Power (PACP) and the Presidential Task Force on

Power (PTFP). The original terms of reference of the 2010 PTFP which was

essentially to support the Power Sector in driving the Reform Roadmap

targets. PTFP operates from the synergy philosophy of “One Leadership,

One Sector, One Mission”

Milestones delivered

Removing obstacles to private sector investment Finalising a cost-reflective tariff Establishing government/sovereign credit guarantees Enabling a functional bulk trader Finalising the settlement system for the market operator Simplifying approach for private sector investment

Divestiture of the PHCN successor companies

Finalising privatisation initiatives in generation and distribution Resolving labour issues associated with divestiture

Improving service delivery

Attaining set targets for generation, gas supply, transmission and distribution

RELEVANCE OF TRANSACTIONS BEING SIGNED TODAY

The transactions presented today testify to promises made and kept when the Roadmap was presented by Mr President in 2010. Evidence of the following will now be presented:

1. The divestiture of all Government owned generation and distribution companies;

2. The transfer to the private sector of managerial control over the Transmission Company of Nigeria;

3. The strengthening of the Nigerian Electricity Regulatory Commission (NERC);

4. The establishment of a credible and appropriate pricing regime with tariffs set at levels that allow investors to recover their costs;

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5. The establishment of the Bulk Trader (NBET) capable of executing bankable Power Purchase Agreements (PPAs) with Independent Power Producers (IPPs);

6. The provision by the Federal Government of Nigeria (FGN) of the credit enhancement required to ensure the bankability of the first wave of IPP PPAs;

7. The reform of the fuel-to-power sector;

8. Receipt of privatization proceeds, for the payment or settlement of labour costs.

INVESTMENT OPPORTUNITIES

Nigeria represents over 65% of the effective West Africa market and remains the most competitive destination for the establishment of medium and large manufacturing industries.

• 10 medium-sized generation plants from the National Integrated Power

Project are being scheduled for divestment;

• Major opportunities exist throughout the power value-chain: in gas

production, gas transportation infrastructure, power generation,

transmission and distribution;

• Opportunities are being developed for the arrival of a private-sector led

market: in training, technical services, consulting, metering and collection

services etc.

• Government is presently and actively engaging with off-grid generation

solutions to provide power to rural and remote areas – a ‘power map of

the country is being developed’;

Nigeria’s Power Sector is open for business!!!

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POWER: THE MULTIPLIER EFFECT

INTRODUCTION

The Power

sector of any

nation is the key driver of

overall social and economic development. This is due to

the straddling

and cross-cutting importance of power especially electricity to every facet of human activity. Its relevance as a fulcrum on which all and other activities revolves around is better appreciated especially in an emerging economy such as Nigeria where abundance of natural resources and human resources remain largely latent vis. a vis. the existing potentials. The development of the power sector is therefore critical to the agricultural & food –processing sector, manufacturing, employment generation, health, water resources, education, ICT etc. The optimal development of Nigeria’s power sector as conceived by the present administration of His Excellency, President Goodluck Ebele Jonathon will therefore unleash Nigeria into a super highway of rapid and sustainable industrial growth and social wellbeing of our population. This will

ensure not just the realization of the Vision 20:20 but enable Nigerians to maintain one of the highest standards of living in the world.

NEW POWER EMPLOYEES

The electric power supply chain through generation, transmission and distribution creates great opportunities for employment of labour and these opportunities are projected to increase with more private sector investment for efficient, safe and reliable power supply. Such opportunities will come directly from the utilities and indirectly from companies that will be involved with maintenance and servicing of utilities’ facilities. At present, maintenance and servicing of utilities’ facilities is usually through direct labour but with demand on the private driven power sector, there will be need to engage competent companies who will be employers of labour in all categories.

Company Name Additional Technical Manpower

Required To Sustain Present Capability

Additional Technical Manpower Required Due To Increase In Next 5 Years (NIPP Projects)

Total Additional Manpower Required

All Host Generation Companies

909 - 909

All NIPP Generation Stations - 400 400

Transmission Company (TCN)

1,486 1,672 3,158

All Distribution Companies 5,944 7,030 12,974

TOTAL 8,339 9,102 17,441

Additional technical manpower required for distribution, transmission & generation at present and in next 5 years based on expected expansion in the system

– source National Power Training Institute of Nigeria (NAPTIN) 20121

Alongside the utilities and the service companies, the oil and gas sectors which supply the fuel for power generation will be expected to expand to accommodate the growing power demand. In its development, new job opportunities will be created.

1 This is the manpower deficit arising solely from new capacity added by the Federal

Government and does not include any new capacities planned by the expected new owners and IPP developers.

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With the present reforms at the minimum the following category of staff will be needed to infuse new skills and capacities in the sector. Most of these persons will be gauged in the private sector through the successor companies of the PHCN (NDPHC) and NIPP. This is without consideration of new IPP projects and potential investors in other segments of the sector in the years ahead.

NEW TECHNOLOGIES & APPLICATIONS

With a liberalized power sector, and an enabling environment, private investors will seek competitive means of providing power supply. Independent Power Producers may resolve power generation from renewable energy sources where and when there is a comparative advantage. It is becoming increasingly cost-effective to supply remote areas, rural areas with difficult terrain, and areas far from the grid with distributed generation from renewable energy sources and off-grids solutions. Recent examples include: Gembu plateau in Taraba State – about 300km from the grid across very difficult terrain, Obudu hills and Eburutu Communities in Cross River State, and Ibedu Ibiakot Communities in Akwa Ibom. Renewable energies especially biomass, or waste-to-energy usually have a long chain of activities that cuts across several sectors making them more labour-intensive than conventional energy generation methods. Being multi-sectorial, renewable energy promises greater job opportunities when compared to the conventional sources, it incentivizes agriculture through the re-use of agricultural waste for power, and enhances municipal solid waste management. Other renewables such as small hydropower and solar photo-voltaic (PV) power will create jobs at the communities where they are deployed. It is estimated that during the construction of a 1-2MW solar PV nearly 40 persons are employed. This number increases by approximately 15 persons for every additional 1MW capacity. In the case of Concentrated Solar Power (CSP) systems, up to 500 personnel would be typically employed in the construction of a 20MW capacity project. POWER & INDUSTRIES The industrial sector which is one of the engines for economic development completely relies on the availability of adequate power supply. Economic

indicators have shown a declining contribution from the productive sector to the Nigerian’s Gross Domestic Product (GDP) for decades, aside from crude oil export. Manufacturing which should ordinarily form the bedrock of industrialization contributed less than five percent to the pool while crude oil and gas contributed 95%.

Government has further demonstrated its commitment to quickly revitalize the industrial base by providing proper and adequate laws to enhance investment strategies policies for private sector to participate in the Nigerian power sector. These will provide employment opportunities, reduce costs and prices, increase skills development, help in the utilization of resources and provide more foreign earnings into the country. According to the United Nations statistics, Nigeria is the 7th largest country in the world. With a population of 160 Million – half the population of West Africa, 15% of the population of the African continent – she is expected to reach 230 million people in 20 years. With adequate provision of power supply she will be the hub of industrialization within the ECOWAS region. The unique human resources, vast amount of natural resources, untapped solid mineral resources amongst other great potentials have convinced the government to transform the power sector and to re-position Nigeria into one of the top 20 economies by 2020.

POWER & ICT/TELECOMMUNICATIONS

Inadequate power supply which leads to high cost of maintenance of generators and fueling is one of the problem facing telecommunication operators. Government is determined to reduce the operation cost of the ICT/Telecommunication providers by tackling power problems in order to have improved and quality telecommunication services to allow the country and her citizens to benefit from the productivity gains in a world driven increasingly by data and information.

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POWER AND AGRICULTURE Agriculture has a dual role as a major energy consumer and as an energy supplier in the form of bioenergy. Agriculture offers important rural development opportunities; it assists climate change mitigation by substituting bioenergy for fossil fuels. The World Bank has proposed a greater focus on rural energy in its lending portfolios for the energy sector, and is planning to bring renewable energy considerations more prominently into non-power sector lending, such as in the agriculture sector (World Bank, 1999) Any efforts to increase access to power and generation will assist Nigeria in meeting its energy requirements for agriculture, forestry and fisheries and thereby achieve sustainable development. A transition from the present energy mix of mainly wood fuel, animal and human work, to a more diversified supply utilising modern energy technologies will be key to improving the living conditions of rural populations. One major benefit of providing electricity to the agriculture sector is that it can achieve a lower cost of fertilizer production. Other benefits are:

An increase in the number of fertilizer production companies in Nigeria (both foreign and domestic).

Further incentives to engage in fertilizer production in all states of Nigeria.

Significant reduction in price of fertilizer; thereby ensuring availability to even the lowest income farmers and availability of food for all.

Job creation as a result of increase in fertilizer production companies in Nigeria.

Solve the age long problem of fertilizer importation in Nigeria by reducing significantly the cost of domestic production.

Improving energy services for rural people will also increase the energy used for agriculture providing productivity gains, enhanced food security and rural economic development. The agriculture sector’s capacity for production of biomass, agriculture is also a potential source of renewable energy supply, creating a major

opportunity for agriculture to play an important role in sustainable energy development. POWER AND EDUCATION Apart from providing necessary technical back-stopping and increased scholarship for continuous sustenance of the energy sector, education plays other vital roles. Knowledge gaps which exist within the energy sector could be bridged through education. Specifically the role of Information and Communication Technology (ICT) to achieve this can never be overemphasized. Energy sources (like electricity) play a crucial role in the development and use of ICT in striving to achieve sustainable development in emerging economies. The volume of information available as a result of ICT for all to harness seems endless. Although electrical energy is intrinsically linked to economic, environment and social dimensions of sustainable development, this has been reduced due to current challenges within countries with electricity generation. Researchers perceive strategies for promoting solar power generation for increased access to ICT by people will be beneficial to the education sector.

In Nigeria, as part of a government initiative to promote ICT scholarship in schools and other education centers, the number of computers (without access to internet) has increased significantly while inability to access the internet has been blamed on power sources. Additionally an investment in the power sector will inevitably create a better learning environment for students and lower the costs institutions spend on its operations. POWER AND SME’S According to the World Bank Enterprise Survey, electricity is considered by far the most importance hindrance to businesses in Sub-Saharan Africa. Small and medium businesses play a key role in driving the economy of Nigeria and stable power supply is very critical to the survival of such businesses. In order to improve access to electricity, large investments have to be made in electricity production and transmission. Better regulation and public purchase

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agreements must be put in place in order to boost investment. When such regulations are in place, investments in electricity production in Nigeria would improve the business environment significantly since access to electricity is considered their most important obstacle to business activities. The local barbers, welders, milling workers and many more industries would be instantly and positively affected by a boost to electricity supply. Where there is no power supply, these workers currently operate on a generator which inevitably consumes a significant portion of their income. The domestic rice industry offers huge potential to Nigeria, yet rice is currently imported cheaper as electricity costs have increased the price of the good. Increased power can re-vitalise this and other industries. Poor power quality and reliability have their own costs. In addition to high prices from self-generation, unpredictable outages represent a serious problem for businesses in Sub-Saharan Africa. According to a Youpes et al (2008) study on Sub-Saharan Africa estimates indicate that annual GDP growth would have been 1-2 percentage points higher if access to electricity had been more stable. It is necessary to maintain the momentum of reform to guarantee success.

INTRODUCTION TO NIPP

The National Integrated Power Project (NIPP) was conceived in 2004 as a

fast-track government funded initiative to stabilize Nigeria’s electricity

supply system while the private sector led structure of the Electric Power

Reform Act (EPRSA) of 2005 took effect.

NIPP was originally designed around seven medium sized gas fired power

stations in the gas producing states and the critical transmission

infrastructure needed to evacuate the added power into the national grid.

A commitment to electrify host communities in the vicinity of the power

stations and major substations gave rise to the distribution component of

the project.

In August 2005, the National Council of State and National Assembly

approved an initial funding of US$2.5 billion for NIPP from the “Excess

Crude Oil Account” (ECOA) which statutorily belongs to the Federal, state,

and local governments. The Federal Government therefore incorporated

Niger Delta Holding Company Limited (NDPHC) as a limited liability

company to serve as the legal vehicle to hold the NIPP assets using

private sector-oriented best business practices.

In January 2009, the National Economic Council (NEC) inaugurated the

NIPP Steering Council chaired by the then Vice President Dr. Goodluck

Ebele Jonathan, with six state governors and four Federal ministers as

members.

The NIPP Steering Council is now the Board of Directors of NDPHC chaired

by Vice President Mohammed Namadi Sambo.

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INTRODUCTION TO NDPHC

The NDPHC is a corporation registered by law as a Special Intervention

Vehicle (SIV) designed to inject massive and accelerated investments in

the power sector along efficient private sector models under the aegis of

National Integrated Power Projects (NIPP) to fast-track capacity

improvement in the power sector. Accordingly the NIPP originally

conceptualized to undertake mostly generation (gas-fired) projects, had

to stretch its ambit to include a wide range of transmission and

distribution upgrade projects in order to address years of under-

investment and the resultant capacity gaps in the sector. Its mission can

be summarized as follows: to increase generation, ensure proper

alignment between the three segments – Generation, Transmission and

Distribution – to avoid stranded generation, and improve grid efficiency

and reliability.

The NDPHC is jointly owned by the three tiers of Government and its

board is chaired by the Vice President of the Federal Republic of Nigeria.

In terms of planned contribution to the national grid, the NIPP generation

projects have been targeted to add a total of 4774 MW from 10

generation plants each set up as wholly-owned subsidiaries of NDPHC.

These plants are now to be divested.

GENERATION ASSETS:

1. The transaction to be structured as a sale of shares with NDPHC

retaining 20% equity stake in project companies.

2. The transaction to be undertaken through a single process, completing

the sale of each asset after it has been commissioned.

3. A limit will be placed on the amount of the installed generating

capacity any one bidder/ consortium can own. Amount is to be

determined by NERC.

NIPP POWER PLANTS

Plant Location Gas

Turbines

Steam

Turbines

Capacity

Alaoji Abia State 4 2 961

Calabar Cross River

State

5 0 561

Egbema Imo State 3 0 338

Gbarain Bayelsa State 2 0 225

Geregu Kogi State 3 0 434

Ihovbor Edo State 4 0 451

Olorunsogo Ogun State 4 2 676

Omoku Rivers State 2 0 225

Omotosho Ondo State 4 0 451

Sapele Delta State 4 0 451

Totals 35 4 4,774

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TRANSACTION TIMELINE

Task Proposed Date

Invitation of Expression of Interest April 8, 2013

Investor Road Shows May 8- June 4, 2013

Submission of Expression of Interest June 28, 2013

Short Listing of Bidders July 19, 2013

Availability of RFP and Transaction

Documents for Short Listed Bidders July 26,2013

Opening of Data Rooms July 26, 2013

Bidder Due Diligence July 26 - November 1, 2013

Final Comments on Industry Agreements and Preliminary Comments on Transaction Agreements and RfP August 23, 2013

Transaction Review Conference September 9-10 2013

Distribution of Final Industry Agreements September 20, 2013

Final Bidder Comments on Transaction Agreements and RfP September 27, 2013

Distribution of Final Bid Documents October 11, 2013

Deadline for Submission of Proposals November 8, 2013

Completion of Evaluation of Technical Bids November 29, 2013

Financial Bid Opening December 6, 2013

Announcement of Preferred Bidders January 17, 2014

Submission of Preferred Bidders' Guarantee February 7, 2014

Commencement of Negotiations March 3, 2014

Execution of Agreements April 18, 2014

Handover of Assets June 16, 2014

For more details and to register, please go to http://www.nipptransaction.com/

1. Expression of Interest

The purpose of the Expression of Interest stage is for bidders to prequalify to progress to the

second stage of the process, at the end of which they will submit their bids to acquire the

majority stakes in the generation companies.

Parties interested in submitting Expressions of Interest should register on the Registration for

Expression of Interest page, following which they will be issued with an Information

Memorandum providing further details of the transaction and the NIPP power generation

assets, together with Pre-Qualification Instructions and Criteria.

In the Expression of Interest phase, bidders will be asked to indicate which companies they

are interested in and to describe and provide documentary evidence on their competencies.

Bidders that are approved by NDPHC based on their Expression of Interest submissions will

be considered as pre-qualified bidders.

2. Roadshow Events

A Roadshow Event will be held in Lagos, London, New York and Hong Kong throughout May

and in early June 2013, during the Expression of Interest stage of the process. The purpose of

this Roadshow Event is to introduce the transaction to interested parties and answer

questions about the assets and the transaction process.

Please refer to the Roadshow Events Registration page to register online to attend the

Roadshow Events in one or more locations.

3. Bid Documents

Bid documents will be issued to the pre-qualified bidders. These documents will include a

Request for Proposals and agreements, including transaction agreements and industry

agreements to be entered into by the generation companies, for, inter alia, the supply of

natural gas and the purchase of electricity generated.

4. Data Rooms

An online data room will be established and managed where information including bid

documents and background materials will be uploaded for review and download by pre-

qualified bidders. A physical data room will also be established in Abuja for pre-qualified

bidders that wish to use it.

5. Site Visits

Pre-qualified bidders will be offered the opportunity to visit the sites of the power plants in

which they are interested.

6. Transaction Review Conference

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A Transaction Review Conference will be held in Abuja in September 2013, the purpose of

which is to answer pre-qualified bidders’ questions on the assets, the process and the

agreements, and address any other outstanding issues.

7. Bid Evaluation Process

The process for the bid evaluation will contain two steps:

Technical Bid Evaluation – Bidders’ technical capabilities will be evaluated

against criteria advised at the start of the Request for Proposals stage of the process.

The financial/commercial bids of bidders who do not pass the technical bid evaluation

phase will be returned unopened.

Financial/Commercial Bid Evaluation – The financial/commercial bids of those bidders

passing the technical bid evaluation phase will then be opened for evaluation against

criteria advised to pre-qualified bidders at the start of the Request for Proposals stage of

the process.

8. Execution of Agreements

NDPHC and the successful bidders will execute the transaction agreements as a part of the

closing process for the transactions.