The Federal Government of Nigeria (FGN) on Monday, September 5, 2017 announced plans to commence a fresh privatisation of the following assets: the Afam power plants I-V located in Rivers State; the Yola Electricity Distribution Company (YEDC) located in Adamawa State; and the Lagos International Trade Fair Complex (LITFC) in Lagos State.
The announcement of the aforementioned decisions reached by the National Council on Privatisation (NCP) at its meeting on August underscore the efforts of the present government to further promote private participation in the Nigerian economy. Some of the other efforts we have noted in this regard include the formulation of an Economic Recovery and Growth Plan (ERGP), dedicated reform efforts to improve the ease of doing business, the facilitation of access to credit, the introduction of a special foreign exchange window for investors and the introduction of tax incentives for areas considered critical to the diversification of the Nigerian economy, among others.
Figures released by the National Bureau of Statistics (NBS) for the performance of the Nigerian economy in the second quarter of the year indicate a growth in the Gross Domestic Product (GDP) by 0.55 percent, taking the country out of recession while also signalling more potential for growth. It is therefore our considered opinion that it is a good time for foreign investors to pay closer attention to the opportunities in various sectors some of which are reflected in the fresh privatisation plans. To assist this process, we will briefly consider the assets listed in the new plan announced as indicated above.
The Lagos International Trade Fair Complex (LITFC):
The LITFC is located in Ojo along the Lagos/Badagry expressway, a part of Lagos state that has recently been at the centre of strategic investment moves by the state government. The complex is situated on a large expanse of land and has the potential to become a massive commercial hub for Nigeria and West Africa. Its potential for revenue is similarly very high and perhaps explains the request of the Lagos State government for a transfer of the complex alongside some other federal government assets.
The plan of the FGN for the LITFC is yet unascertained as it merely announced a revocation of the concession to Aulic Group and invariably needs to address the concerns that have followed the announcement. Nonetheless, should the FGN opt for an open bid process, intended investors who may become eventual owners of the LITFC are bound to benefit from increased efforts of the Lagos state government to develop the tourism potentials of that axis of the state as well the anticipated completion of the Lagos Rail Mass Transit network, particularly the Blue Line Rail with a 27 km rail road linking thirteen stations from the deepest outskirts of Lagos in Okokomaiko to its commercial heartbeat in Marina. The Lagos – Badagry expressway itself presents an access to the West African market as it is the Nigerian section of the Trans–West African Coastal Highway, an important infrastructure project expected to significantly boost cross-border trade, a substantial portion of which we foresee the LITFC hosting.
The Afam Power Plants I-V:
The first phase of the Afam power plant was built in 1975 while the last phase was completed in 2001. The thermal power plant which has a combined installed capacity of about 977 MW is presently managed on behalf of the FGN by Afam Power PLC, a successor company to the Power Holding Company of Nigeria (PHCN). Afam I-IV has an operating capacity of 836.6MW, while Afam V possesses the capacity to generate 276MW of electric power. Paucity of investment over the years has seen the plant’s output hovering at about 100 MW but that is expected to change should the fresh privatisation process succeed.
The FGN had previously attempted to privatise the Afam Power Plant. In July 2013, a consortium led by the Talevares Group was selected by the Bureau of Public Enterprises (BPE) as the preferred bidder. Talevaras paid $64m representing 25 percent of the purchase price but was subsequently unable to meet its obligation for full payment and eventually withdrew its bid.
It is yet unclear what bids may be acceptable to the BPE under the current privatisation arrangement but it is expected that due process would be followed. Prospective investors may therefore retain the services of legal advisers to guide them through the procurement stages, noting the peculiar benefits of investing in the Afam Power Plant. Specific benefits include proximity to feedstock and access to the transmission network while general incentives include increased investment by the FGN in the nation’s transmission network and increased generation capacity for the benefit of the entire nation. The Power Assurance Guarantee introduced by the FGN in March 2017 is also expected to provide additional comfort to investors who take over the power plant while more benefits are expected to accrue to sector participants as the government continues its implementation of the Power Sector Recovery Programme.
The Yola Electricity Distribution Company (YEDC):
The Yola Electricity Distribution Company (YEDC) was one of the companies successfully acquired during the first phase of the power sector privatisation programme in 2013. The Integrated Energy Distribution and Marketing Company which initially purchased the company from the FGN was however forced to withdraw from the deal after making a series of force majeure declarations, citing operational difficulties at a time terrorist group, Boko Haram constituted a security menace to Nigeria’s north-east.
YEDC serves Adamawa, Taraba, Borno, and Yobe states, which are hugely populated states that have begun to enjoy a new lease of life following sustained efforts by Nigeria’s military to address the security challenge in the region. The region has also begun to see increased investments in housing, transportation and power infrastructure by both public and private entities. It is therefore considered a good time for prospective investors to take positions by seizing the privatisation opportunity offered by the government after undertaking a thorough due diligence of the assets of the company which is presently managed by the FGN.
Investors in YEDC may be able to take advantage of the strategic benefits offered by government and international development institutions currently working on rebuilding the region. The Nigerian Bulk Electricity Trading company (NBET) and the industry regulator (Nigerian Electricity Regulatory Commission) have recently intensified efforts to assist electricity distribution companies in increasing their collection rates while distribution companies are also expected to benefit from the on-going implementation of the Power Sector Recovery Programme by the FGN in partnership with international development finance institutions.
As the FGN presents more details of its current privatisation plan in the days and weeks ahead, we advise prospective investors to look more closely at the Nigerian market and at the multiple factors signalling the return to strong growth in the foreseeable future. We however understand that transacting in the Nigerian business terrain requires proper guidance for successful navigation of the legal, regulatory and political framework associated with doing business in the Country.