Transcript Slide 1
The Privatization Transaction Process and the Opportunities for Investments in the Nigerian Power Sector May 25, 2011 Solutions for growing economies CPCS Transcom Limited Outline • • • • Nigeria Country Profile Power Industry in Nigeria Power Privatisation Transaction Investment Opportunities Solutions for growing economies 2 Nigeria Country Profile • Nigeria is the largest country in Africa with a population of over 150 million • Between 2005 and 2010 GDP per capita has doubled • Nigeria has one of the fastest growth rates of the world with growth of 6-8% per annum expected over the medium term • It is expected Nigeria will be one of the future leading economies in Africa Solutions for growing economies 3 Nigeria Country Profile • With the rapid expansion in GDP expected, there will be an increasing demand for electricity: Solutions for growing economies 4 Outline • • • • Nigeria Country Profile Power Industry in Nigeria Power Privatisation Transaction Investment Opportunities Solutions for growing economies 5 Power Industry in Nigeria • Demand in Nigeria currently far outstrips supply • Estimations have indicated that expensive private generators currently produce more electricity than that of on-grid sources • Estimates for projected demand by 2020 have ranged from 12,000- 40,000 MW • Available generation capacity is currently below 4000 MW compared to Algeria’s 11,000 MW and Egypt’s 24,000 MW Solutions for growing economies 6 Power Industry in Nigeria • Taking national comparisons, there is not only strong excess demand for electricity today, but this demand will continue to grow with the population and economy Solutions for growing economies 7 Outline • • • • Nigeria Country Profile Power Industry in Nigeria Power Privatisation Transaction Investment Opportunities Solutions for growing economies 8 Power Privatisation Transaction 1998-2004 Break up of Monopoly of NEPA First entrance of private industry in power generation market 2005-2011 Deepening of reforms through passing of EPSRA: break up of NEPA, unbundling into separate Successor Companies Preparations for transfer of companies to the private sector 2011+ Takeover of regulated private sector of 17 Successor Companies 5 Year transition period under bulk trader, then move to competitive market Solutions for growing economies 9 Power Privatisation Transaction Demand • Large suppressed demand • High growth rates for GDP and population expected will lead to high future growth Commercial Viability • Strong incentives in place to promote investment • Regulatory framework and tariffs to promote commercial success of private companies High Value Investment • High value industry • Strong interest from reputable national and international firms looking to make significant investments in the industry Solutions for growing economies 10 Power Privatisation Transaction Generation Companies Solutions for growing economies 11 Power Privatisation Transaction Installed Capacity (MW) Available Capacity (MW) Private Participation Afam 776 MW 45 MW 100% Equity Geregu 414 361 [51]% Equity Sapele 1020 135 100% Equity Ughelli 900 228 100% Equity Kainji Plant 760 359 Jebba Plant 578 410 Shiroro 600 393 Kainji: Solutions for growing economies Long Term Concession Long Term Concession 12 Power Privatisation Transaction Distribution Companies Solutions for growing economies 13 Power Privatisation Transaction Area (Km2) Population Participation Abuja 104,279 8,675,000 [51-70]% Equity Benin 57,550 13,206,000 [51-70]% Equity Eko 1,800* 4,556,000* [51-70]% Equity Enugu 28,987 16,396,000 [51-70]% Equity Ibadan 87,631 15,114,000 [51-70]% Equity Ikeja 1,800* 4,556,000* [51-70]% Equity Jos 152,901 16,348,000 [51-70]% Equity Kaduna 145,222 16,352,000 [51-70]% Equity Kano 67,128 19,564,000 [51-70]% Equity Port Harcourt 48,321 13,698,000 [51-70]% Equity Yola 214,200 11,966,000 [51-70]% Equity *Eko and Ikeja both serve Lagos state, this figure represents 50% of the total Solutions for growing economies 14 Power Privatisation Transaction • BPE received 331 EOI’s earlier this year and is finalizing the list of preferred bidders • Once the final steps for the preparations of the sale are complete, RFP’s and bid documents will be issued to preferred bidders • Bids for generation companies will be based upon a standard highest bid value format • Bids for distribution companies will be based upon highest reduction in aggregate technical, commercial and collections loss Solutions for growing economies 15 Power Privatisation Transaction • ATC&C is a concept in the power sector used as a measure of the efficiency and effectiveness of a distribution company • Bidders will not bid on price, but will bid based on reductions in losses (or increase in efficiency), which will effectively increase energy supply • This method of evaluation was chosen to maximize the benefit to Nigerian consumers and the efficiency of the energy sector Solutions for growing economies 16 Power Privatisation Transaction Task Issue Bid Documents to Prequalified Bidders Timeline (in weeks) 0* Establish data room 0 Pre-Bid Conference 4 Bidders’ Site Visits 4-10 MYTO Review Conference 5 Sale/Concession Agreement Review Conferences 8 Bids to be Submitted 12 Complete Bid Evaluation Process 16 Commence Negotiation with Bidders 17 Sign Agreements 19 Handover of Facilities 20 ** *Expected at the end of June ** Targeted for November-December Solutions for growing economies 17 Power Privatisation Transaction Incentives For Investors Pioneer Status R&D Allowance A tax holiday on investors for 3 years, extendable by 2 more years Companies can deduct between 10-100% Capital Allowance Deductions, up to approved limits, for expenditures on capital equipment Training Allowance Rural Investment Allowance Training expenses can be deducted before arriving at profit Deductions of up to 100% for 5 years based on distance from infrastructure facilities Companies in manufacturing can obtain 15% tax credit on replacement of Replacement Allowance obsolete plant and machineries Double Taxation Agreements The Government of Nigeria currently has double taxation agreements with several countries with respect to taxes paid in Nigeria when remitting funds into a counterpart country Guarantee Against Expropriation The Nigerian Investment Promotion Commission Act guarantees against the nationalization or expropriation of any foreign or domestic enterprise Power Sector Intervention Fund The Central Bank of Nigeria has established a N300 billion fund for the aviation and power sectors to provide funds to fast track development Solutions for growing economies 18 Power Privatisation Transaction • While as part of the process valuations of the companies are still ongoing, it is expected that this will be a multibillion dollar transaction • Suppressed demand and opportunities for further efficiencies already identified mean that there is potential for a high return to equity Solutions for growing economies 19 Outline • • • • Nigeria Country Profile Power Industry in Nigeria Power Privatisation Transaction Investment Opportunities Solutions for growing economies 20 Investment Opportunities • The privatization transaction has received much attention from highly reputed national and international firms • It is expected that given the size of the power privatization transaction considerable funding will be required to finance the refurbishment of the power sector. Solutions for growing economies 21 Investment Opportunities • While the RfP documents are still being finalized, it is expected that during this process, bidders may be required to have Bid Bonds and/or Letters of Credit • Based on precedents of international transactions we expect that the rehabilitation/expansion of existing SC infrastructure will require total investments of: • For Generation Companies, approx. $1 Billion and • For Distribution Companies, approx. $2-3 Billion Solutions for growing economies 22 Investment Opportunities Corporate Loans International/Local Banks Bid Bonds and LC’s Debt for Refurbishment Infrastructure Funds Equity Solutions for growing economies 23 Thank You For further information please contact: Arif Mohiuddin [email protected] Solutions for growing economies CPCS Transcom Limited