Acquisition by the Kann Consortium and West Power & Gas of successor distribution companies as part of the Nigerian power sector privatisation
Kann Consortium (a joint venture between Copperbelt Energy Corporation Africa plc and Xerxes Global Investments Limited).
West Power & Gas Limited, a Nigerian company.
Kann Consortium — Abuja distribution zone, Abuja.
West Power and Gas Limited — Eko distribution zone, Lagos.
With a population of approximately 170 million, Nigeria is the most populous country in Africa. However, Nigeria currently only has installed capacity of approximately 8.6GW, of which only about 4.1GW is operational. Trends from developed nations indicate that approximately 1GW of generating capacity is required for every one million inhabitants. Electricity demand in Nigeria therefore far outstrips supply. Its GDP of US$510 billion also ranks it as the largest economy in Africa.
In 2005, the Nigerian government passed the Electric Power Sector Reform Act 2005 (EPSRA) with a view to encouraging private sector investment in the generation and distribution sub-sectors of the Nigerian power sector. The EPSRA established the Power Holding Company of Nigeria, which held Nigeria’s power sector assets through dedicated ‘successor companies’, which in turn held specific generation or distribution assets. The privatisation process was then implemented through a competitive tender process in relation to eleven distribution companies (Discos) and six generation companies (Gencos).
Transmission assets were retained by the government, the management of which has been contracted to Manitoba Hydro (Canada).
In 2012, the Bureau of Public Enterprise (BPE), which has coordinated the privatisation process, received 330 expressions of interest in the privatisation tender rounds, of which 207 bidders were pre-selected. Through the subsequent bidding process, five preferred bidders for the Gencos and ten preferred bidders for the Discos (including our clients) were selected by the BPE.
The structure of the Disco transactions is shown on the following simplified diagram:
In this Project, we advised each of our Clients in relation to their respective acquisitions of a 60 per cent interest in Abuja Electricity Distribution plc and Eko Electricity Distribution plc. Our scope of work was to act as international legal counsel and to advise our clients in relation to all legal issues with respect to the Project, including:
- compliance with the bid requirements and other matters associated with the bidding process
- project due diligence on all standard form documents prepared by the BPE (including the power purchase agreements, vesting contracts, transmission agreements and connection agreements)
- the terms and conditions of the share sale and shareholder agreements, and related liabilites transfer and receivables assignment agreements
- preparation of technical service agreements
- financing and completion matters.
Implementing the project required the assistance of Nigerian local counsel on a range of matters, including local regulations on the electricity industry and corporate due diligence. Our role as international counsel required us to act as the lead counsel for the Project, acting as a central point of contact for the client and coordinating the legal review and advice with Nigerian local counsel.
We also provided assistance to the ‘Disco Roundtable’, the industry body representing the acquirers of the Discos.
- The privatisation of Nigeria’s power sector is a major step in modernising Nigeria’s power sector. Demand for power in Nigeria currently vastly outstrips supply, so this will help Nigeria to realise its very considerable economic potential.
- The privatisation transactions represent a substantial development in the sophistication and complexity of Nigeria’s power sector regulatory environment.
- With a GDP growth rate that is already at 7 per cent, the potential impact that a reliable power supply would have on Nigeria’s economy could be tremendous.
- The scale and complexity of the process is unprecedented in Sub-Saharan Africa, and the privatisation has the potential to take Nigeria from a hydrocarbon-based economy to a manufacturing economy capable of satisfying 170 million Nigerian consumers as well as those in the wider region.