19th June, 2013
Two power companies owned by Professor Barth Nnaji, former Minister of Power, take on the Bureau of Public Enterprises in a tussle that threatens the ongoing privatisation of the power sector
In what is yet the strongest indication of his administration’s determination to see the ongoing privatisation of the power industry through, President Goodluck Jonathan, in April, signed agreements with successful bidders for 11 distribution and six generation companies unbundled from Power Holding Company of Nigeria, PHCN. At the landmark event, Interstate Electrics Consortium, one of the companies that submitted bids, emerged as the successful bidder for the Enugu Distribution Company. Distribution companies, DISCOs, are responsible for delivering electricity to end-users and collecting payment.
If eventually, Enugu DISCO is handed over to it, Interstate will be responsible for distributing electricity in the 14 business units across the five South-East states of Enugu, Abia, Anambra, Ebonyi and Imo. This was expressly stated in the information Memorandum on Enugu DISCO issued by the Bureau of Public Enterprises, BPE, to all pre-qualified investors on 1 November 2012. But even before it formally takes over the company, Interstate is locked in a battle over the extent of the control it will have in Enugu DISCO. The investor has applied to be joined as a party in the suit filed against BPE by Geometric Power Aba Limited to contest the complete sale of Enugu DISCO in a move that threatens to take the wheels off the entire privatisation programme.
Geometric Power Aba Limited, GPL, an electricity generation company, and Aba Power Limited, APL, a distribution company owned by Professor Barth Nnaji, former Minister of Power, want two business units–Aba and Ariara–covering ring-fenced island of Owerri-Nta, Osisi Oma, Ogbor Hill, Factory Road, and Port Harcourt Road in Aba, Abia State, as well as the distribution facilities covering the listed areas excluded from the assets, to be handed over to Interstate by BPE. The suit, with BPE as defendant, is now before a Federal High Court in Abuja, and has APL and GPL (plaintiffs) requesting the court to stop BPE from going ahead with the inclusion of the two business units in the assets to be handed over to Interstate.
The plaintiffs base their claims on the contract they said APL signed with BPE and the defunct National Electricity Power Authority, NEPA, to supply power generated by GPL to the ring-fenced commercial and residential consumers in Aba, Abia State, using Enugu DISCO’s existing facilities within the contract area. The two companies’ claims over the two business units date back to 2001, when the Federal Government, in a bid to increase the country’s generation capacity through its Electric Power Policy, began entering into various Rehabilitate Operate and Transfer (ROT), Emergency Power Project contracts (EPP) and Independent Power Project (IPP) contracts.
As stated in article 4.2.3 of the Electric Power Policy, electricity generated through the IPP and EPP should be resold to NEPA, its distribution subsidiaries or privatised subsidiaries for distribution to the end users. On 11 May 2004, the Federal Government signed an MoU with GPL for the construction of a 3 x 35MW Open Cycle Gas Turbine Power Plant. The emergency power to be provided from the plant is to be added to the national grid in line with the government power policy.
But the groundwork for the GPL power generating plant had barely been concluded before GPL, leveraging on its initial MoU, entered into another agreement with the defunct NEPA, using APL, its sister company, to lease NEPA’s distribution assets in Owerri-Nta, Osisi Oma, Ogbor Hill, Factory Road, and Port Harcourt Road in Aba for the distribution of power generated from its plant. This was through the Power Distribution and Asset Lease Agreement between the Federal Government, NEPA and APL, dated 28 April 2005 and the Supplemental Agreement, dated 31 August 2006.
By the terms of the agreement, NEPA assigned its right to distribute electric power in the ring-fenced island of Owerri-Nta, Osisi Oma, Ogbor Hill, Factory Road, and Port Harcourt Road in Aba and also leased its distribution facilities within the contract area. In essence, the agreement provided that APL will supply power generated by GPL to the ring-fenced commercial and residential consumers in Aba, using Enugu DISCO’s existing facilities within the contract area. This magazine gathered that in the original agreement, the contract for the lease of the facilities in the ring- fenced area to APL was for 15 years, effective from 28 April 2005, when it was first signed.
There were, however, provisions for termination of the agreement. But by the supplemental agreement signed in 2006, the term of lease was increased to 20 years and will now commence from the date of completion of the Aba Power Plant. The supplemental agreement also stipulates that six months before the date of completion of the power plant, NEPA and APL will jointly operate the distribution facilities. The distribution facilities will thereafter be transferred to APL, which also undertakes to commence independent operations no later than 24 months after the effective date of completion of the power plant.
Indeed, in a caveat emptor published earlier in the year, APL invited the attention of parties interested in acquiring Enugu DISCO to the existence of the agreement. “The general public is therefore advised to properly investigate any purported sale, purchase or transfer of any rights whatsoever, which includes Aba and Ariaria business units and seek proper legal rights accordingly,” the warning read.
However, the fact that GPL and APL have now gone to court to force government to respect the agreement meant that the impression convened in the publication, especially in regard to the attitude of BPE and NERC may not be totally true. This aside, GPL has also in the past few months embarked on campaigns, either directly or through different proxies, in which it asked the federal government to respect the agreement.
Some Igbo leaders in Lagos, led by Professor Anya O. Anya, had on 12 December 2012, written to President Jonathan asking him to respect the terms of the agreement with APL. “The biggest challenge right now to this is respect of agreement; we just have to ensure that agreements are respected in this regard because it is very important for investors to have confidence in the system considering the enormity of investments involved,” Nnaji himself told journalists some months ago while condemning the offer of the entire Enugu distribution network to Interstate by BPE despite the existence of the 20-year lease agreement with APL.
As this magazine gathered from sources with BPE and NERC, the validity of the original and supplemental agreements is being vigorously contested on many fronts. For one, there is the argument that those who signed the agreements on behalf of the Federal Government and the defunct NEPA were not legally qualified to do so. The 2005 lease agreement was executed between the Federal Government, NEPA and APL. For the August 2006 supplemental agreement, Liyel Imoke, the then Minister of Power, signed on behalf of the government. However, the space for the signature of the Transmission Company of Nigeria was left vacant, while Enugu Electricity Distribution plc, improperly identified in the agreement as Enugu Electricity Distribution Company, was represented by its purported MD/CEO and the company secretary.
However, sources within the NERC and BPE told this magazine that the lease agreement is invalid, having been made after the repeal of NEPA Act. The National Electric Power Authority Act 1990 as amended, through which NEPA derived its power, was repealed by Section 99 of the Electric Power Sector Reform, ESPR, Act 2005. Indeed, Section 99 of the ESPR, which came into force on 11 March 2005, expressly states that: “The Electricity Act and the National Electric Power Authority Act as amended are hereby repealed.” Thus, the EPSR Act has already repealed NEPA Act more than a month before the lease agreement ceding the two business units in Aba to APL was executed.
The implication is that as at 2005, when NEPA purportedly leased the assets to GPL, it was no longer in existence. The ESPR Act fixed 1 July 2005 as the initial date for transfer of assets and liabilities–as of that date–standing on the audited balance sheet of NEPA to its successor, Power Holding Company of Nigeria, PHCN. Section 98 (5) EPSR Act specifically provides that: “Subject to this Act, any permission granted, direction given or other thing whatsoever made, done or commenced which immediately before the initial transfer date had or was capable of acquiring force and effect pursuant to the Electricity Act or the National Electric Power Authority Act, shall on and after the initial transfer date, continue to have, or as the case may be, to be capable of acquiring force and effect as it had been granted, given, made, done or commenced as the case may be pursuant to the equivalent provision of this Act.” Thus, there has been argument that since the lease agreement was signed before the initial transfer date, it should also be inherited by the successor company of NEPA, just like other assets and liabilities of the defunct authority.
This argument, sources said, is vitiated by the fact that NEPA itself has ceased to be in existence, courtesy the EPSR Act as at the date it (NEPA) entered into the lease agreement with APL and GPL. The argument is that though there had not been transfer of NEPA assets as at 28 April 2005, the basis upon which the authority derives its powers to enter into any transaction has been destroyed. NEPA, as at that date, did not have the powers to lease its assets with the repeal of the NEPA Act some weeks before then.
In the same vein, questions are also being raised over many aspects of the 2006 supplemental agreement.
Sources told this magazine that going by Section 1 of the EPSR Act, the Minister of Power, who signed the agreement, had no power to do so. Specifically, the Act mandated the National Council on Privatisation, NCP, to within six months of its coming into force to incorporate a company limited by shares, which shall be the initial holding company for the assets and liabilities of the authority. As stated in the ESPR Act, the shares of the initial holding company, on incorporation, shall be held by the Ministry of Finance Incorporated, MOFi, and BPE in the name of and on behalf of the Federal Government of Nigeria. Section 8 of the ESPR Act further mandated the NCP to within eight months of establishment of the holding company take steps to create additional companies, as it may deem appropriate as “successor companies for assuming the assets and liabilities of the initial holding company, including but not limited to, companies with functions relating to the generation, transmission, trading, distribution and bulk supply and resale of electricity”.
Just like for the holding company, the Act stated, the shares of each of the successor companies, from the dates of their incorporation, shall be held jointly in the name of the MOFi and the BPE for and on behalf of the government. Enugu DISCO plc is one of the successor companies created to take over the assets and liabilities the holding company, PHCN, in Enugu zone. The company was incorporated on 7 November 2005 as a public limited liability company with an authorized share capital of N5million divided into 10 million ordinary shares of 50 kobo each.
As stipulated in the ESPR Act, its shares are held for and on behalf of the government by two shareholders– BPE (represented by Mrs. Irene N. Chigbue, then BPE Director-General), which holds 80 per cent, and MOFi (then represented by Loko Nkwalaku), which holds 20 per cent. Chigbue and Nkwalaku also represented Enugu DISCO’s shareholders as the two directors of the company. Thus, BPE sources, insisted that as at the time of signing the 2006 agreement, the ESPR Act had removed authority over NEPA assets from the minister and conferred it on the BPE and MOFi.
Consequently, it was the two agencies that should have represented the government, but they were not made a party to the supplemental agreement. Instead of Chigbue and or Nkwalaku, the agreement was executed by Engr. O.C. Akamnonu and the company secretary.
Though Akamnonu was described as the MD/CEO, he was not a director of Enugu DISCO as contained in the certificate of the incorporation and was therefore incapable of executing the agreement on behalf of the company. But going by Section 69(b) of Companies and Allied Matters Act, CAMA, this in itself may not render the agreement invalid, especially as it relates to GPL and APL, this magazine learnt.
Indeed, GPL and APL, according to the Act, are entitled to assume that “any person…represented by the company, acting through its members in general members, board of directors or managing director, as an officer or agent of the company, has been duly appointed and has authority to exercise the powers and perform the duties customarily exercised or performed by a director, managing director, or secretary of a company carrying on the type carried on by the company or customarily exercised or performed by an officer or agent of the type concerned.”
To use this basis to argue for the nullification of the agreement, it has to be proved, according to the article, that Nnaji, the man behind GPL and APL, had actual knowledge that Akamnonu was not a director of the company or he ought to know so by virtue of his knowledge of the power privatisation process.
With so many defects being raised about the supplemental agreement, GPL and APL may have to rely on the original agreement to justify their claims. But sources in BPE and NERC also told this magazine that by the time the supplemental agreement was signed, APL had severally breached the original agreement. Article 3.2 of the original agreement stipulated that NEPA’s leased facilities shall be transferred to APL by 1 September, 2006 while article 3.3 also clearly stated that APL shall pay punctually to NEPA within the first month of every year the annual charges comprising wheeling and fixed charges, which shall be paid without any counter-claim, deduction or set-off of any kind. APL also undertook to begin distribution of electricity to the ring-fenced islands farmed out to it not later than 12 calendar months from 28 April 2005 when the agreement was signed.
However, this magazine gathered that by the time the supplemental agreement was signed, APL was already in breach of its obligation to distribute electric power in the ring-fenced islands by four months (May to August 2006) as well as in breach of its obligation to pay the annual charges by seven months (February to August, 2006). This, sources infer, was the reason for inclusion of article 1.3 of the agreement, which amended the date of commencement from of the lease agreement to a term of 20 years, commencing from the date of the completion of the Aba power plant. But it is doubtful if this will suffice to take care of the breaches, given the doubts already raised about the supplemental agreement. Moreso, article 11 expressly identified breaches committed by APL as sufficient grounds to terminate the agreement. Specifically, Article 11(a) and (c) provide for termination on the occurrence of the following: (a) if APL fails to pay rentals or any of the sums agreed to be paid by APL to NEPA under this agreement punctually on the due date; or (c)if APL is in breach of any terms and conditions of the agreement.
Contentions about the original and the supplemental agreements aside, stakeholders in the industry also said the consent of the NERC must be obtained before a licensee can transfer, assign or cede his undertaking, or any part thereof, by way of sale, mortgage, lease, exchange or otherwise. This is explicitly stated under Section 69(1) of the EPSR Act and Condition 12 of NERC’s Standard Licence Terms for DISCOs.
Indeed, contravention of this provision is a ground for cancellation of a DISCO’s licence and the enforcement of the lease arrangement will therefore be in breach of the EPSR Act unless NERC’s consent is obtained. There is also the argument that the involvement of GPL, APL, GPL which are all affiliated companies in power generation and distribution could be a contravention of the provisions of article 4.3.4 of National Electric Power Policy, which provides that generating companies will not be allowed to own shares in distribution / marketing companies.
But this magazine learnt that the ownership structure of the three companies must be determined before this argument can be made. It can be argued that the National Electric Power Policy is just a policy and does not enjoy the status of a law. But stakeholders in the industry, however, told this magazine that its policy thrust of encouraging competition in the industry and preventing concentration and abuse of market power by players is necessary if the country is desirous of developing a robust power sector. BPE sources affirmed that the brains behind APL and GPL not only knew that they needed a distribution licence before they could enter into the lease agreement, they also knew the status of the ownership of Enugu DISCO as to obtain the appropriate persons to execute the agreements. Perhaps, this was why a company in which Nnaji has an interest was discovered to be involved in the bidding for the Enugu DISCO last year, in contravention of the privatisation laws. The discovery not only led to the cancellation of the process by the NCP, it also led to ouster of Nnaji as minister.
Rather than dabbling into distribution of the power it generates to get its revenue, with the attendant technical and commercial losses, industry stakeholders told this magazine that GPL should take the opportunity of the Bulk Trader off-take arrangement backed by Partial Risk Guarantee of the World Bank, just like the other IPPs, so as not truncate the ongoing privatisation in the sector. This, stakeholders insist, is even imperative, given what they described as the murky financial status of the company. Diamond Bank, GPL’s main financier, has sold the company’s N30 billion loan to Asset Management Company of Nigeria, AMCON.
Some sources argued that the exposure to AMCON may have totally wiped off the value of the GPL’s 144 megawatts power plant. But in recent documents the bank solicited for investors seeking to buy into GPL, it put the value of the GPL at $450 million. This has further raised questions on whether the bank included the assets of the controversial Aba Distribution Network in arriving at the valuation.
On his part, Nnaji is insisting that the lease the agreement that farmed out the Aba ring-fenced zone to his company is sacrosanct and offering that part of the Enugu DISCO to the preferred bidder, as has been done by BPE, is in clear breach of the agreement. The GPL Chairman has also indicated that President Jonathan has assured that government will respect the lease agreement. Stakeholders, however, reasoned that rather than seeking the presidential intervention, GPL and APL should concentrate on the law suit they have already filed. Direct intervention of the President, they argued, will not only jeopardise the credibility of the privatisation process in the power sector, it will also be a negation of the much-vaunted commitment of his administration to rule of law.
—Ayorinde Oluokun/Abuja