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Nigerian Power Sector Infrastructure
Domestic Supply Obligation and Gas Pricing Policy

Under the DSO, every gas producer must allocate a portion of their
production to the DSO before they can allocate any gas to other
commercial obligations. Non-compliance would result in significant
penalties. Once the gas producer has satisfied its DSO quota, any amount
of gas produced in excess of that can be sold on a willing buyer/willing
seller basis. The amount each supplier must allocate is not fixed but is
determined each year based on domestic demand and the number of gas
suppliers. Allocation to each supplier is done on an equitable basis
determined by the Minister for Energy.
Before the DSO was introduced and became operational in 2010,

practically all gas produced was exported because the price the PHCN
GenCos were willing (and able) to pay was too low to make it commercially
viable to supply gas to local GenCos. The situation could not persist if the
Nigerian government wanted to attract investment not only to the power
sector but also to the gas sector. It was accepted that the age of effectively
financially and structurally subsidising the power industry had passed.
However in order to ensure, as far as possible, a smooth transition to a
free-market system in the gas industry and in other strategic industries,
price increases would have to be managed rather than left to the market to
set the level.
The regulated pricing regime for the DSO (bulk of which is for power) is
based on determining the lowest cost of supply that will allow a 15% return
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to the supplier. This floor price has been set at US$0.10 per Mcf . The
actual price paid for gas includes an escalation for inflation and an
indexation to the real time product price and/or any other indices that the
buyer and seller agree upon. The Ministry of Energy determined that the
cost reflective baseline was c.US$1.00 per Mcf by 2012. This was later
reviewed to US$1.50 per Mcf.
The main sticking point with the DSO has been on the issue of pricing
because the baseline price paid to the producers for DSO gas to
power has been below the market price (now US$3.80-4.00 per Mcf).
On 2 August 2014 the FGN announced a revision in the DSO gas-to-power
price for 2014 to US$2.50 from US$2.00 per Mcf as part of measures to
bridge this pricing issue. This brings the DSO price closer to, but still well
short of the market spot price of US$3.50-4.00 per Mcf. The DSO price is
expected to reach export-parity in 2016, thereby doing away with the need
for price regulation. MYTO II factors in a gas price of US$2.19 per Mcf by
2017
31
Thousand Cubic Feet
CSL Stockbrokers is a division of FCMB (UK) Limited which is authorised by the Prudential Regulation Authority
(PRA) and regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) in the Page 101
United Kingdom
Chart 21: DSO Gas Price to Power Profile (2010-2013), Chart 22: Old Gas Price to Power vs Annual Price of US
US$/Mcf LNG Imports from Nigeria, US$/Mcf
4.00 18
Current Market (Spot) Price Range
3.50
3.50 16
14
3.00
On 2 August 2014 the FGN revised the 2.50 12
2.50 2014 DSO gas-to-power price to
US $ per Mcf
US$ per Mcf
US$2.50 per Mcf

2.50 10 Annual Price of
2.00 US LNG Imports
1.80 2.00 from Nigeria Old Gas Price to
8
1.50 1.50 Power
1.50
6
1.00
1.00
4
0.50 2
0.00 0
2010 2011 2012 2013 2014 2015 Est. 2016 Est. 2000 2002 2004 2006 2008 2010 2012
Source: NERC, CSL Research Source: NERC, US EIA, CSL Research
Figure 30: Operation of the Domestic Supply Obligation
Domestic Buyers Other Exports
Power Fertiliser Methanol Regional Pure Liquefaction

Plants Plants Plants Pipelines LNG Plants
Gas Transmission Line
Integrated LNG Plant

Central Gas Processing Facility With Own CGPF
(CGPF) Bilateral
Contracts
Gas for Own Export

Excess Gas
Projects
Over DSO
Domestic Supply Obligation

(DSO)
Wet Gas
Gas Suppliers
(International Oil Companies
& Independents)
Source: CSL Research
United Kingdom
Gas Aggregation Company

The Gas Aggregation Company Nigeria Limited (GACN) is the aggregator
of natural gas produced for domestic use in Nigeria. It acts as an
intermediary between suppliers and buyers of natural gas in the Nigerian
domestic gas market and ensures that the Strategic Sectors are supplied
with gas under the appropriate pricing schedule. Its responsibilities also
include managing receipts of payments and disbursement of an aggregate
gas price to suppliers and facilitating the execution of necessary securities
in respect of default of gas payments.
The only three entities permitted to buy gas through the GACN are:
GenCos whose sole business is to generate power to the national grid;
companies that use gas as feedstock for their end products; and local
distribution companies which sell gas to commercial and manufacturing
companies in the domestic market. A Gas Supply and Aggregation
Agreement (GSAA) between the buyer, seller and the GACN governs terms
of gas supply and purchase.
While the GACN is not itself a regulator, it interfaces with the Department of
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Petroleum Resources (DPR) on the due diligence process it conducts on
buyers, demand rationing criteria and DSO management. The gas market
lacks a clear regulatory hierarchy as various organisations such as the
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GACN, NGC, DPR and PPPRA all act as pseudo regulators to a greater
or lesser degree. It is hoped that the long-awaited Petroleum Industry Bill,
should it be eventually passed by the Legislature, will clarify the situation.
Figure 31: Operations of the Gas Aggregation Company of Nigeria
Power Sector Price Supplier 1

Aggregate Price
GBI Sector Price GACN Supplier 2
LDC Sector Price Supplier 3
Cash Flows
Gas Flows
Source: CSL Research, GAGN

GBI: Gas-Based Industries
LDC: Local Distribution Companies. Domestic sellers of gas to commercial and manufacturing companies.
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Part of the Ministry of Petroleum Resources.
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Petroleum Products Pricing Regulatory Agency
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Gas Flaring Financial Waste & Environmental Scourge

In the current operating environment natural gas in Nigeria is essentially a
by-product of extracting crude oil. In 2011, having flared or vented 620 BCF
of natural gas, Nigeria was second only to Russia, a country that produces
over 10 times as much gas as Nigeria. There was slight improvement in
2012 when Nigeria claimed the no.3 spot, having flared 587 BCF of natural
gas. This amounted to 23% of gas extracted in 2012.
It is estimated that flaring gas costs Nigeria between US$2.5-3.0 billion a

year in lost direct revenues. Thus by reducing flaring to a minimum, the
Nigerian gas industry can be self-funding vis--vis the investment in
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infrastructure that is required to bring the infrastructure up-to-scratch .
Chart 23: Worlds Top Gas Flaring Countries, 2012* Chart 24: Nigeria Gas Production vs Flared, 2012
646
620 3,000 42.3% 45%
587
36.1%
2,500
Billion Cubic Feet (Bcf)
32.6%
Billion Cubic Feet (Bcf)
423
401 2,000 26.3% 27.7% 30%
25.8%
24.3%
22.7%
1,500
256
213
157 1,000 15%
139 128 123
88
65 62 55 500
Venezuela
Indonesia
Angola
Canada
Nigeria
Russia
Congo (Brz)
Kazakhstan
Algeria
Libya
US
Mexico
Brazil
Iran
Iraq
0 0%
2005 2006 2007 2008 2009 2010 2011 2012
Gross Production Flared/Vented % Flared/Vented
Source: US EIA, CSL Research Source: NNPC, CSL Research

* Mexico, Kazakhstan, Brazil & Germany = 2011
Financial Loss
The real cost of gas flaring to the economy is greater if we include loss of
opportunity and production losses from the lack of gas supply to power
plants. We have used another proxy to indicate the extent of
financial/opportunity waste resulting from flaring gas. We look at the ratio
of carbon dioxide (CO2) emissions from flaring alone to carbon dioxide
emissions from both consumption (a productive activity) and flaring. If we
compare Russia and Nigeria, both are responsible for about 14% of world
CO2 emissions from flaring gas. However, CO2 emissions from flaring
represent just 3% of Russias total CO2 emissions from both consumption
and flaring of natural gas. Russia at 3% compares to Nigeria at 75% (Chart
25).
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Estimated at US$1.5-2 billion over the next five years.
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Chart 25: Degree of Opportunity Loss from Flaring Productive CO2 Emissions
(from Consumption) vs Wasteful CO2 Emissions (from Flaring)
35 91% 90% 90% 100%
30
75%
80%
25
Million Metric Tonnes
56%
60%
20
15
40%
10 22%
20%
9% 11% 10% 12%
5 5% 6%
3% 1% 2%
0 0%
Algeria
Angola
Nigeria
Indonesia
Mexico
Cameroon
Canada
Russia
Iran
Qatar
US
Brazil
Congo (Brz)
Iraq
Venezuela
CO2 from
CO2 f rom Flaring
f laring CO
% 2 from
CO2 Flaring
f rom f laringvs. Total CO
vs.Total CO22 from
f romConsumption
consumption & Flaring
and f laring
Source: US EIA, CSL Research

2011 Figures
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Environmental Cost
The financial cost to a country of flaring is one thing but the overall cost to
the country is far higher. A more holistic approach would include the
environmental cost by way of air pollution, carbon emissions etc. Without
any suitable carbon-capture technologies in place, Nigeria also ranks high
in carbon dioxide emissions from flaring (Table 20).
Table 20: Carbon Dioxide Emissions from Gas Flaring, 2011 (MMT)
World Rank CO2 Emissions from Flaring

1 Russia 31.2
2 Nigeria 31.1
3 Iran 30.6
4 Venezuela 17.3
5 Iraq 17.0
6 Angola 12.7
7 United States 11.7
8 Indonesia 9.6
9 Mexico 8.1
10 Algeria 7.1
11 Qatar 5.4
12 Brazil 3.2
13 Canada 3.0
14 Congo (Brazzaville) 2.7
15 Cameroon 2.7
WORLD 224.9
AFRICA 64.0
Source: US EIA
MMT Million Metric Tonnes
Pragmatism on Green Electricity and the Environment

Having consideration of the environmental impact of any industrial activity
has become as critical as the evaluation of the economics. So much so that
major finance institutions such as the World Bank, the IMF and the African
Development Bank will not support a project without an environmental
impact assessment report. Nigeria, in looking to make more constructive
use of its gas reserves and reduce flaring, improves its environmental
awareness credentials significantly.
We acknowledge that thermal power generation is far from being carbon-

neutral, however it causes less environmental damage than flaring gas.
The thermal generating plants in situ and those planned are open-cycle gas
turbine (OCGT) plants rather than combined-cycle gas turbine (CCGT)
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plants largely due to the fact that CCGTs have higher construction costs .
However it is anticipated that over time many will be converted to CCGT
plants as these are more energy efficient and have less impact on the
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See Appendix 5: OCGT and CCGT Power Plants, page 189.
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environment. The advantage of having efficient electrical power supply to

households is easy to appreciate as it would alleviate the need to burn
biomass for light and heat. There are also benefits to industry by making it
more energy-efficient.
It is still early days and there are more ground-level activities to address
regarding power generation. Notwithstanding we consider it commendable
that the FGNs plans have integral yet pragmatic considerations for
reducing the carbon footprint of the power industry. Renewable energy
such as solar power, wind and small hydro have dedicated resources at the
federal level to support and encourage the expansion of this sub-sector
under the aegis of the Federal Ministry of the Environment. We believe that
the incorporation into MYTO II of a specific tariff schedule for electricity
generation from renewables is a firm indication of the FGN/NERCs long-
term commitment to green electricity.
Figure 32: Gas Processing and Transport in Nigeria
Domestic
Buyers
Lean Gas Transmission Line

Gas
Dry Gas
Gas processed and Power Plants

treated to remove
Central Gas
impurities Processing Facility
Wet Gas
LPG
&
Wet Gas
NGL
Gas, other
hydrocarbons Gas Gas
and impurities Compressor Compressor Trucks
extracted Station Station
LPG Storage
Ships
Gas
LPG Liquefied Petroleum Gas
Wells NGL Natural Gas Liquids
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Chapter 10:
The Privatised Power Sector
The Nigerian Electric Power sector has now been privatised to the extent
planned. The new owners took control of the Successor GenCos and
DisCos on 1 November 2013. But for nominal (non-participatory)
holding stakes retained in some GenCos and DisCos, the FGN is
effectively out of the power generation and distribution business. It
only maintains control over transmission system operation and market
operation, for now. Ideally, the FGN would have preferred to privatise the
entire electric power supply value chain and just retain regulatory oversight
and monitoring. However for a number of reasons, some alluded to in
previous chapters and others to be elaborated on in those ensuing, the
FGN has had to settle on privatising just the PHCN DisCos and GenCos
and, it hopes soon, the NIPPs.
Figure 33: The Privatised Nigerian Electricity Supply Industry
Successor
NIPPs IPPs
GenCos IPP
Distribution
Licence Holder
TCN NBET
Embedded
Generation
Successor DisCos
Private Private Private

Generators Generators Generators
Credit Where and When Due

In our view it is already an achievement that long-held vaulted plans to
privatise the PHCN GenCos and DisCos per se have been seen through. In
any context privatising a state utility is no small feat. Irrespective of the
motives behind allowing this attempt at reform (for there have been many)
to get as far as it has, it is a sine qua non that realism and pragmatism
enabled the FGN to see the raiment-less emperor NEPA in the bare state it
was. It is only from such a point that a workable plan could be devised.
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Leadership and Intellectual Capital Responsibility

Unlike the case of mobile telephony, it was impractical to start the entire
electricity system of the country from scratch. Transforming a moribund
industry into one with the culture, systems and technology fit for the twenty-
first century was going to require unwavering commitment and intellectual
brawn. Any hope of success in privatising the electricity sector was/is
dependent on getting the right professionals in to oversee the process and
to lead the new institutions. In our estimation, and gauging by the opinions
of numerous industry stakeholders we have canvassed, the FGN has done
well in this regard.
The intellectual and professional capital of key institutions like the regulator
NERC, NBET and TCN has been bolstered by recruiting skilled leaders
from within the domestic power industry and also from outside the domestic
market. However we have reservations about the amount of political
interference that could come from the countrys Executive and Legislative
arms going forward. Our concerns particularly relate to NERC and TCN.
The degree to which these two institutions are left to carry out their
statutory roles independently and for the benefit of all the
stakeholders in the electricity market and they actually do so, is the
degree to which the privatised industry will endure, will be efficient
and will be profitable.
The Privatisation Process What, When & How?

The FGN sold 60% stakes in 11 successor DisCos to the private sector
raising US$1.46 billion. It also sold between 51-100% stakes in 5 successor
thermal GenCos and awarded 15-year concessions for 2 successor
hydroelectric power plants, raising US$1.65 billion.
Purchasers of Successor GenCos and DisCos

Table 21 and Table 22 below give the names of the winning bidders for the
successor GenCos and DisCos respectively. We expand these tables with
the salient details of the privatisation in Table 21 and in Table 22 at the end
of this chapter. In the tables we include the parties within the winning
consortia and have sought to identify, as far as possible, key individual(s)
connected with each of the winners.
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Table 21: Purchasers of Successor DisCos
Bid Stake Distribution

Successor DisCo Purchaser (US$ mn) Acquired (GWh)
Abuja Electricity DisCo KANN Consortium Utility Co. Ltd. 164.0 60% 1,802
Benin Electricity DisCo Vigeo Power Consortium 129.0 60% 1,855
Eko Electricity DisCo West Power & Gas Consortium 135.0 60% 1,440
Enugu Electricity DisCo Interstate Electric Consortium 126.0 60% 1,920
Ibadan Electricity DisCo Integrated Energy Distribution & Marketing 169.0 60% 1,989
Ikeja Electricity DisCo NEDC/KEPCO Consortium 131.0 60% 2,077
Jos Electricity DisCo Aura Energy Ltd 82.0 60% 714
Kaduna Electricity DisCo Northwest Power Ltd. 201.0 60% 1,233
Kano Electricity DisCo Sahelian Power SPV Consortium 137.0 60% 788
Port Harcourt Electricity DisCo 4Power Consortium 124.2 60% 1,164
Yola Electricity DisCo Integrated Energy Distribution & Marketing 59.3 60% 265
Source: BPE
Table 22: Purchasers of Successor GenCos
Bid Stake Installed

Successor GenCo Purchaser (US$ mn) Acquired Capacity (MW)
Afam Power Taleveras Energy Group 260.1 60% 776
Egbin Power NEDC/KEPCO Consortium 407.3 70% 1,320
Geregu Power Amperion Power Distribution Co. Ltd 132.0 51% 414
A 15-yr concession, the fee
structure being:
1) A commencement fee
(the bid price);
2) Yr1-Yr5 a royalty
payment of 5% of plant
annual revenues;
3) Yr6-Yr15 a fixed
Kainji Hydro Electric Mainstream Energy Solutions Ltd. 237.9 annual fee US$50.8mn. 760
Sapele Power CMEC/EURAFIC Energy Consortium 201.0 100% 1,020

A 15-yr concession, the fee
structure being:
1) A commencement fee
(the bid price);
2) Yr1-Yr5 a royalty
payment of 5% of plant
annual revenues;
3) Yr6-Yr15 - a fixed
Shiroro Hydro Electric North South Power Consortium 111.7 annual fee US$23.6mn. 600
Ugheli Power Transcorp Consortium 300.0 100% 942

Source: BPE
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Industry Agreements
In February 2013 the preferred bidders and the BPE signed Shareholders
Agreements and Share Sale Agreements. They also executed Industry
Agreements which serve as the framework for the fully-commercialised
power sector. The following have emerged as some of the key documents
which will need to be in place and bankable for power sector financings:
Share Sale Agreements (DisCos and thermal GenCos)
Concession Agreements (Hydro GenCos)
Gas Supply and Aggregation Agreements
Gas Transportation Agreements
Power Purchase Agreements (GenCos; 15 year duration): capacity

and energy payments are broken into Naira and US Dollar
components. The foreign components are payable in naira at the
prevailing exchange rate.
Vesting Contracts (DisCos; 15 year duration)
Transmission Use of Network System Agreements
Grid Connection Agreements
Ancillary Services Agreements
Bulk Trader Credit Support
Deed of Assignment of Pre-Completion Receivables
Operations and Maintenance Agreement
Pre-Completion Liabilities Transfer Agreement
Future Performance Evaluation and Monitoring

The Nigerian Electricity Supply Industry (NESI) is now fully regulated.
NERC is charged with overall regulation and issuing of licences for
participants in the sector. The BPE is the FGNs signatory to the
agreements with the new owners of GenCos and DisCos. The documents
that govern the monitoring and regulatory frame work are in Table 23.
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Table 23: NESI Monitoring and Performance Evaluation Documents
Governing Document Scope
Share Sale and Purchase Terms and conditions of sale of shares

Agreement (SSPA) to investors
Contains terms of payment and Post-

Performance Agreements (PA) Acquisition Plans (PAP) implementation
BPE's Post Privatisation

Monitoring Template
NERC's Reporting compliance Outlines the level of compliance and

Regulation standards expected of utilities
Sets out mandatory requirements for
NERC's Terms and Conditions of acquiring a licence and penalties for
Licensing breach of terms.
Source: BPE
Post-privatisation monitoring by the BPE was expected to start in May

2014. But as TEM has not yet been declared, it is not likely that the full
scope of performance monitoring under the regulatory powers given to the
BPE and NERC will be in effect.
The Performance Agreement (PA) is the main document empowering the

BPE in its monitoring function. Compliance monitoring gives the BPE the
right to enter and monitor the privatised companies every six months upon
giving five days notice of such action. It also gives it the right to audit or
review the businesses every six months.
Performance Obligations Under the PA

General
The intent of these general provisions in the PA is to ensure that the
investor is held to the spending plans. The BPE retains these rights to
ensure that the development of the NESI remains on target. From a public
policy perspective, we consider this to be a shrewd arrangement by the
BPE/NERC given the FGN will no longer have direct control of the GenCos
or DisCos and will not be contributing any capital pro rata to its retained
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stakes . Some general provisions of note include:
The investor must ensure the purchased DisCo or GenCo achieves the
Minimum Performance Targets;
The investor is liable to pay liquidated damages for performance falling

below the stipulated standard;
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Thus in the case of any further capital raising by the GenCo or DisCo in which the FGN has
retained a stake, the FGNs holding with be diluted.
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The investor must comply with the initial budget and Post-Acquisition
Plans (PAP) set out in the Performance Agreement, to which they
agreed to enter when they signed the SSPA.
For the first 5 years, annual revisions to budgets and plans require the
consent of the BPE and thereafter the BPE reserves the power of veto
over certain expenditures;
The investor is not allowed to take on senior debt without the prior
consent of the BPE, which shall not delay or unreasonably withhold
consent. This provision is included to safe-guard against the Successor
Companies being laden down with debt;
The Debt to Equity ratio of the successor company cannot exceed

70:30 for the first 5-years. Thereafter it may only rise to 75:25;
Insurance cover must be maintained on the companies at all times;
Performance obligations are to be secured by Parent Company

Guarantee. In the case of a consortium, the parent company of the lead
investor is to provide the guarantee, subject to BPE approval in relation
to the technical and financial standing of the parent company.
Successor GenCos-Specific:
Successor GenCos capacities are expected to be increased from current
low available capacity levels to meet minimum target generation capacities
set out in the Industry Agreements.
Successor DisCos-Specific:
The performance of the business operations of the new owners of the
successor DisCos will be measured on the basis of their abilities to reduce
distribution losses to loss targets specified in their business plans. They will
also have targets for expanding their distribution networks and in
connecting new customers.
ATC&C Losses
The Successor GenCos were sold to the highest bidder for the specific
GenCos. Bidders for the Successor DisCos, on the other hand, were given
the figure the FGN was going to sell the DisCo for and the evaluation of
bids was on the basis of the projected reduction in Aggregate Technical,
Commercial and Collection Loss (ATC&C Loss) over the first five years of
acquisition. The DisCo was sold to the bidder with the highest reduction in
ATC&C Loss.
The ATC&C loss figure is a key performance indicator for power distribution
companies. It enables operators to monitor efficiency and profitability in
delivery of power to customers. ATC&C Loss is the difference between the
amount (in MWh) of electricity received by the DisCo and the amounts
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billed and received from customers (in ). The difference in electricity

received by the DisCo and electricity it bills the customer gives the
technical and commercial loss, while the difference in the amount billed and
the amount received/collected from the customer gives the collections loss.
Thus reduction in these losses improves profitability.
Each bid contained a 5-year ATC&C Loss reduction schedule based on a

starting loss figure provided by PHCN. The winning bidder had the lowest
end loss level for that particular successor DisCo. The purchasers ATC&C
Loss figure is very important because the purchasers end level figure is
then incorporated into the MYTO model, as each DisCo has its own MYTO-
determined tariff plan. If the purchaser does not achieve the loss target, it
will be less profitable than it has planned, and vice-versa should the target
be exceeded (i.e. the end ATC&C Loss figure achieved turns out lower than
targeted). If the purchaser consistently fails to meet its loss-reduction
targets, NERC may decide to revise the purchasers capex allowance
amount under its DisCo tariff.
The ATC&C Loss targets of the winning bidders are shown in Table 24.
Table 24: Distribution (ATC&C) Losses and Loss Reductions
Bidder's Yr 5
ATC&C Loss
Opening Bidder's Yr Relative to
Successor DisCo Winning Bidder Loss 5 Loss Opening Loss
Abuja DisCo KANN 35.00% 12.78% -36.51%
Benin DisCo Vigeo Power 40.00% 12.19% -30.48%
Eko DisCo West Power & Gas 35.00% 12.76% -36.46%
Enugu DisCo Interstate Electric 35.00% 6.70% -19.14%
Ibadan DisCo Integrated Energy 35.00% 12.71% -36.31%
Ikeja DisCo NEDC/KEPCO 35.00% 9.99% -28.54%
Jos DisCo Aura Energy 40.00% 18.09% -45.23%
Kaduna DisCo Northwest Power 40.00% 11.70% -29.26%
Kano DisCo Sahelian Power 40.00% 13.02% -32.55%
Port Harcourt DisCo 4Power 40.00% 14.90% -37.25%
Yola DisCo Integrated Energy 40.00% 17.34% -43.35%
Source: BPE
Indias Tata Power Delhi Distribution Limited (TPDDL) is a joint venture between Tata Power and
the Government of the National Capital Territory of Delhi, with the majority stake being held by
Tata Power (51%). Tata Power acquired its stake following the unbundling of the Delhi Vidyut
Board (DVB) in 2002. As is the case for investors in Nigerias DisCos, Tata also had five-year
ATC&C Loss reduction targets. Its opening ATC&C Loss was 53% and its target was 31%. TPDDLs
ATC&C Losses stood at 11% at the end of the 2012/13 financial year. This compares to a world
average of about 15%.
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Table 25: Successor DisCo 5-Year Capex* Table 26: CSL Estimated* Successor GenCo Capex
(US$ million) 2014-18 Capex 2011

Installed Available Estimated
Abuja DisCo 180 Capacity Capacity Capex
Benin DisCo 119 (MW) (MW) (US$ mn)
Eko DisCo 134 Afam Power 776 45 796
Enugu DisCo 215 Egbin Power^ 1,320 880 430
Ibadan DisCo 112 Geregu Power 414 361 37
Ikeja DisCo 147 Kainji Hydro 760 359 653
Jos DisCo 149 Sapele Power 1,020 135 959
Kaduna DisCo 222 Shiroro Hydro 600 393 319
Kano DisCo 288 Ughelli Power 900 228 721
Port Harcourt DisCo 125 Total 5,790 2,401 3,915

Source: BPE, CSL estimates
Yola DisCo 64
* Please note boxed commentary within the main body of the report.
Total 1,755 ^ Not included in 2011 BPE presentation. Figures from market
sources.
Source: NERC
* MYTO II Model assumptions.
NGN:USD rate of 160
- NOTE -
There have been varying reports over the last few months of the level of Available Capacity (AC) of these
successor power plants and it continues to be difficult to get precise figures. Now that the GenCos are
under private ownership, for the time being at least, we expect the precise figures to be considered
privilege between the operators and NERC/BPE. This is especially so given the sensitivities surrounding the
delay in the declaration of TEM and the operation of the Interim Rules Period.
Notwithstanding, we wanted to have a rough sense of how much capex could be required to get each
GenCo's Available Capacity close to its Installed Capacity, as this is a key performance requirement of the
new owners set out in the Performance Agreements signed with the BPE.
At the 2011 Bankers Conference Workshop for the PHCN privatisation, the BPE provided the AC of each
PHCN GenCo. We have based our calculations on this figure and used the MYTO II models level for AC of
95% as our target. Given the 2011 AC date, we caveat our calculated figures because the reality on the
handover date may have been higher or lower for any of the GenCos.
We have assumed that each MW added for the gas-fired plants costs US$1.15 million based on the industry
yardstick of US$1-1.3 million of capex per MW. We have used the MYTO II estimate of US$1.8m per MW for
the hydro plants.
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Current Market Stage Interim Rules Period
Figure 34: Key Characteristics of the Market Stages in the Evolution of the Nigerian Electricity Supply Industry
Interim Rules Transitional

Pre-TEM Medium Term Long Term
Period Electricity Market
Stage Market Market
(IRP) (TEM)
Unbundling of TEM was expected to start at NBET and TCN roles within Wholesale Electricity Market Retail competition - all
NEPA/PHCN; the end of January 2014. NESI become will be the balancing market for consumers choose their
Privatisation of However a number of factors effective/operational; trading electricity in the suppliers;
made NERC deem it necessary industry. It will be characterised Clear differentiation between
PHCN GenCos and Contracts of privatisation
DisCos; to delay the start of TEM and by a spot market where distribution (delivery) and retail
signed between Successor
introduce a set of Interim Rules. electricity prices are set daily. activities;
Review and Companies and State
subsequent Notable points on the IRP: institutions including Power DisCos and GenCos will be Open access to the
application of the Purchase Agreements (PPAs), permitted to enter bilateral transmission and distribution
i. As contracts of the
Market Rules and Vesting Contracts (VCs) and contracts for the purchase networks.
privatisation such as PPAs
procedures; Partial Risk Guarantees (PRGs) and/or sale of electricity.
and VCs only become fully
enforceable once TEM is become effective; Open entry to the transmission
Establishment of
performance declared, Successor GenCos Payments and settlements network to GenCos, DisCos
incentives and and DisCos are expected to based on prices and terms and large power consumers. All
performance continue with their Pre-TEM contained in PPAs and in VCs. subject to technical and
trading arrangements during environmental obligations, and
standards for the No centrally-administered
distribution and the IRP. overseen and licensed by the
balancing mechanism for the
generation regulator NERC.
ii.GenCos bill the Market market;
companies; Operator (MO) for electricity Development of procedures for
Payments and generated and available the management of inadequate
settlements based capacity based on MYTO II supply and shortage in the
on Shadow Trading tariffs. However as Pre-TEM system;
and Transfer Pricing; contracts apply, Transfer
Pricing and Estimated Billing Open access to the
NBET, TCN and is in operation. transmission network to
PRGs not yet GenCos and DisCos.
operational; iii.The MO continues to bill the
DisCos for electricity.
iv.The MO determines the
allowable amount of funding
(the Minimum Funding
Requirement) for the
Successor DisCos, Successor
GenCos and for the Service
Providers including NERC, the
Transmission Service
Provider (TSP) and the
System Operator (SO).
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Table 27: Pre-TEM and TEM Characteristics Compared
PRE-TEM TEM
Transmission, Distribution and System Operations retain their monopoly and regulated status during Pre-TEM and TEM.
Sellers:- Sellers:-
- Successor GenCos - Successor GenCos
- IPPs with PPAs - IPPs with PPAs
Buyers:- Buyers:-
- Successor DisCos - Successor DisCos (also licensed as marketers)
Market - International connections - International connections/customers
Structure - Local large power consumers - Local large power consumers
Service Providers:- Service Providers
- TSP - TSP
- ONEM Market Operator - NBET
- System Operator - TCN System Operator
- Central (Headquarter) Services - TCN Market Operator
Transfer Pricing Vesting Contract and PPA Prices
Successor GenCos and IPPs sell to Successor DisCos
- Successor GenCos sell at Transfer Prices calculated every 3
months
Pricing - IPPs sell at their PPA prices
Regime Buyers:-
- Successor DisCos buy at Transfer Prices
- International connections buy at prices in their Connection
Agreements.
- Local large power consumers buy at regulated end-user tariffs
TSP TSP
- Provides transmission access to both GenCos and DisCos - Provides transmission access to both GenCos and DisCos
- Recognises and accounts for transmission losses - Recognises and accounts for transmission losses
ONEM Market Operator NBET
- Commercial administration of the market including settlements - Commercial administration of the market including
Service and payments using Market Rules settlements and payments using Market Rules
Provision System Operator TCN System Operator
- Technical administration of the market using the Grid Code and - Technical administration of the market using the Grid Code
provision of other services for grid stability. and provision of other services for grid stability.
Central (Headquarter) Services - Pricing of transmission access
- Provides common services such as funding of special projects,
emergency funding
Market in equilibrium - a debit by a DisCo has a
Market does not always balance corresponding credit to a GenCo therefore NBET maintains a
zero balance.
Shadow Trading Wholesale Electricity Market Trading
- MO receives payments into its market clearing account from - NBET receives and transfers payments between GenCos
DisCos and eligible customers and Successor DisCos
- Existing IPPs sell through PPAs with NBET
- New IPPs may contract to sell either to NBET or with the
- MO transfers payments to GenCos and service providers DisCos directly
Payment Settlement Settlement
& - Per individual settlement calendar - Market settlement each month (M) for each DisCo
Settlement - DisCos sell at uniform prices and use estimated billing - Monthly payment (M+1 month)
System - IPPs sell at PPA prices; Successor GenCos at various Transfer
Prices .
Payment Payment
- DisCos submit a Letter of Credit covering three months of
payments to be drawn down (plus interest) in the event of
- Payment made into escrowed settlement accounts non-payment by the DisCo.
- Incomes in line with MYTO II Revenue Requirement
- Based on Minimum Funding Requirement determined by the MO provisions
- The Transfer Price is expected to cover the budget for operating - Per MYTO II, capital costs and return on investments can
costs only. also be recovered.
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PART III The Investment Case
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Chapter 11:
Pitfalls and Opportunities
It is an indisputable fact that the supply/demand gap for power in a
country with a population of almost 170 million generating less than
4GW presents a prima facie investment opportunity. How the theory
(of the new regime) works in practice is the crux of the investment
case for the Nigerian power sector.
As with any such sector-wide endeavour, stakeholders (investors,

customers etc) and other commentators need to make allowances for the
journey not going entirely smoothly. This is not a Nigerian phenomenon
but is to be expected in the implementation of corporate or industry-wide
strategy the world over. The concern and hope is that these bumps
amount to minor, surmountable hiccoughs.
We ultimately want to identify where the equity is in the new sector and
assess how much funding is available to make the required investments.
This involves an initial evaluation of the main risks in the Nigerian
Electricity Supply Industry. We have grouped the risks methodologies
adopted and operating procedures in the NESI Financial and Systemic
Risks. The latter not least highlighted by and revealed in the Interim
Market and the delay in the declaration of the Transitional Electricity
Market (TEM). We then analyse the Structural Risks of the industry.
GAS
SUPPLIERS
GENCOS END-USERS
FGN DISCOS
FINANCE TCN /
MARKETS NBET
NERC
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Chapter 12:
Financial Risks
We will address two core financial risks in this chapter:
1. The skewness of risk allocation amongst counterparties;

2. Critical problems with MYTO II, which in practice results in a
tariff structure that is not commercially sustainable as it
currently stands.
Network Risk Allocation Skewed Against Discos

NERC insists that the pricing structure is set so that it spreads the risks
equitably among the users of the transmission network. It is intended to
assign the costs or charges to the user or group of users incurring those
37
costs . At the same it states that the rationale on risk allocation is that
the pricing arrangements should allocate risks efficiently [which implies]
38
generally to those who are best placed to manage them.
These two phrases may strike one as incompatible because they both
claim to be the premise on which the transmission tariffs are set and load
allocated, yet on interpretation they could lead to different results. One
purports to allocate costs to the user(s) incurring the cost and yet for the
second to also hold true, it implies that costs are incurred by those best
placed to manage them. This is not necessarily the case.
If we then look at how this has worked in practice, in MYTO II the bulk of
the cost of the transmission network (build, management and
maintenance) is charged to the DisCos 80% of the TUOS charge is
borne by the DisCos. It is not immediately apparent why:
(a) 80% of the cost of getting the energy from the generator to the
distributor/retailer should be incurred by the DisCo and/or
(b) the DisCo is considered to be better placed and more efficient than
the GenCo to manage transmission costs.
All these costs are ultimately passed onto the end-user, so it could be
said that neither GenCo nor DisCo are disadvantaged. However from a
cash management and capital structure perspective, to say the least, it
does matter. It has implication for the risk exposure of the businesses
hence their cost of capital and returns profiles.
37
NERC Multi Year Tariff Order for the Determination of the Cost of Electricity Transmission
and the Payment of Institutional Charges for the Period 1 June 2012 to 31 May 2017 (herein
after MYTO II Transmission); p.19.
38
MYTO II Transmission, p. 17.
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According to NERC, if GenCos were to be exposed to connection

charges, they would be more likely to choose locations that minimise
these charges. NERC contends that this could be detrimental to the even
distribution of access to electricity across the country.
GenCos Not Let Off in Entirety

NERC asserts that GenCos have an incentive to reduce the losses
associated with transmitting their generated energy. GenCos have limited
ability to effect improvements in transmission losses (and by equivalence
Marginal Loss Factors, MLFs). We believe the incentive to improve this is
limited since they do not bear the cost of system transmission loss. They
can minimise the losses associated with transmission up to their network
node connection point, however it is on a de minimis scale when
considering the vast bulk of transmission occurs after title/responsibility
passes from them at their node connection.
DisCos essentially pay for transmission losses however they too have no
means of reducing these losses. They are not in control of the spending
to improve and extend the transmission network even though they
provide the financing (through the TUOS charge).
Under the terms of the PRG, NBET/TCN bears the risk of Availability
Events. It essentially guarantees transmission. We understand the full
implication of this, in light of the realities of the market post handover,
might be weighing heavy on the FGN. Current negotiations,
renegotiations and discussions during the Interim Rules Period may well
be seized upon to adjust the blanket guarantee. However we believe this
would send a very negative signal to the market as it smarts of an
inclination of the FGN shifting the goal posts after the fact.
The MYTO II Powder Keg

We have analysed the methodology and assumptions used in the MYTO
II models for generation, transmission and distribution. In Chapter 5: we
talked about the theoretical soundness of the methodologies used and
pointed to similar examples in other electricity markets.
It goes without saying that the utility of a financial model is only as

good as the assumptions plugged into it. We have found the MYTO
II model does not stand up to scrutiny in this regard. The
components of the gun powder we have identified which we discuss in
detail next are:
A. Generation Technical Assumptions
(i) Available Capacity Factor assumptions need to be more conservative
(ii) Construction period for Large Hydro is too ambitious
(iii) Plant Availability needs to be lowered
(iv) Fuel cost assumption is too low
B. Miscalculation of Wholesale Prices leaves GenCos short
C. Transmission Capex is insufficient for actual requirements
D. Distribution ATC&C Losses assumptions are too low
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MYTO II Generation Technical Assumptions

The technical assumptions of GenCos are set out in Table 1: Technical
Characteristics of New Entrant Plants 2012 of the MYTO document on
the determination of the generation tariff published by NERC on 1 June
2012. We have reproduced it below and discuss our findings:
Figure 35: MYTO II Generation Technical Characteristics of New Entrants
Source: NERC, Multi-Year Tariff Order for the Determination of the Cost of Electricity Generation for the Period 1 June 2012 to 31 May 2017, Table
1: Technical Characteristics of New Entrant Plants 2012, p.20.
The industry rule of thumb for construction costs of an OCGT plant is approximately US$ 1 million per megawatt (i.e.
US$1,000 per kilowatt). Hence this Unit should be per kW and not per kWh (kilowatt hour). Otherwise it would mean
NERC assumes that a 250 MW OCGT plant costs over US$ 2 trillion! (250 MW = 2.19 billion kWh)
As far as the calculations in the MYTO financial model is concerned, after analysing the calculations in the MYTO
financial model, we can confirm that the effect of this particular typographical error turns out to be merely cosmetic.
However, as we illustrate in Table 29 page 126 and Table 30 on page 127, other typographical errors led to a significant
miscalculation of the Revenue Requirement. This is notable because it is the (purported cost-reflective) Revenue
Requirement from which tariffs are set.
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(i) Available Capacity Factor Assumptions Need To Be More

Conservative
We have compared MYTO II plant Available Capacity Factors (ACF) with

those from more established and efficient markets (see Table 28 below).
As a result, we believe those in MYTO II need to be more conservative.
ACF is sometimes referred to as Available Capacity or Capacity Factor

(as in the MYTO II financial model; item #5 in the MYTO table shown in
Figure 35). There is an inverse relationship between the ACF and the end
tariff. So MYTO assumes that as the ACF of plants increases, the end-
user tariff should decrease. This is not a one-for-one proportional
relationship as there are several other technical variables that also affect
the end-tariff and/or also affect each other.
Available Capacity Factor is the Actual Plant Output (in MWh)

ratio of the actual output of a Available Capacity Factor =
Theoretical Nameplate Output (MWh)
power plant over a period of time
versus the theoretical power Hence the ACF of a 1,000 MW plant generating 648,000 MWh of
output were it possible to run the electricity in 30 days, for example:
plant at nameplate/installed
648,000 MWh
capacity indefinitely. Equipment =
1,000 MW 24hrs 30 days
availability characterises the
operating reliability of the plant.
= 0.9 = 90%
Table 28: Comparison of Capacity Factors (Available Capacity)
Natural Gas Hydro Coal Comments
US 43% 40% 64% Best In Class gas thermal plants have ACFs over
UK 57% 34% 45% 90%.
MYTO II Successor 65% New 85% 65% 70% The inference from the MYTO II Capacity Factor
GenCos Entrants assumptions for the gas plants is that they are akin to
base load plants running at or very near full capacity
(i.e. nameplate capacity). While this might not be such
a stretch in situations where demand far exceeds
supply, it is not a reasonable or realistic assumption in
a situation like Nigerias where lack of maintenance,
equipment inefficiencies and gas and transmission
infrastructure issues result in a lot of downtime.
The world average for Hydro is 44% but the spectrum is
wide (10-99%) due the variations in plant design. A
small hydro plant in a small river, or one with a
sufficiently large dam reservoir will always have enough
water so wont suffer downtime from fuel supply issues.
Source: NERC, US EIA (2009), UK Dept. Of Energy & Climate (2007-2012 Averages)
The seemingly low ACFs for UK and US gas plants are due to the number and variation of participants selling electricity in their open-traded
wholesale markets. Electricity is offered for sale from power generating installations that use various fuels nuclear, gas, coal, wind, solar, etc.
The running costs of these generators vary and at a particular time it might not be economical for a particular plant to produce electricity at its
optimal (possible) ACF level. Typically, those with the lowest running costs can offer the best prices but the major determinants of price are
ultimately supply and demand and any regulatory price controls that might exist.
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(ii) Construction Period for Large Hydro Plants Is Too Ambitious
The construction period for Large Hydro plants is set at 4 years, just a
year longer than the construction period assumed for small hydro plants
under the feed-in tariff plan. The norm in most markets is a construction
period of 5-7 years.
(iii) Plant Availability Needs To Be Lowered
Plant Availability is the percentage of time the plant is available to

generate electricity over a period of time. It is affected by a plants
Available Capacity (AC)/Available Capacity Factor (ACF).
The MYTO II model sets Plant Availability at 95% of AC for both

successor and new entrant thermal plants. Most gas thermal plants have
high Plant Availability, about 80-99%. The new plants are more likely to
have such a high figure, but this is very unlikely for the Successor
GenCos. Furthermore the figure assumes that plants will not suffer fuel
supply or transmission issues that would effectively make them
unavailable even though technically they might be able to produce
electricity (at their ACF level), as is currently being faced by Successor
GenCos.
(iv) Fuel Cost Assumptions Are Too Low
The gas price is based on the regulated price for both the successor
GenCos and new entrant GenCos (Chart 26). In our view this is not a
plausible assumption for a number of reasons starting with the fact that
39
the current market price of gas is about US$3 per MMBtu :
The DSO price as incorporated in the successor GenCos

privatisation GSAs only applies to the Available Capacity at the
time of sale. There was a wide variation in ACs but the average
for the gas-fired plants was c.40%. Thus using MYTO IIs ACFs
of 65% the successor GenCos will need to buy gas for 35% of
their output at the market price.
The IPPs/new entrants do not benefit from the DSO price but buy
at the market price.
39
Million British Thermal Units.
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Chart 26: MYTO II Gas Price Assumptions vs Market and DSO Prices
4.00
3.00
US$/MMBtu
2.00
3.58
2.30 2.05 2.37 2.56 2.44

1.00 1.80 1.80 1.84
1.53
0.00
2012 2013 2014 2015 2016
MYTO II price DSO price Avg. current market price
Source: NERC, CSL estimates
Miscalculation of Wholesale Prices Leaves GenCos Short

The most significant problem we have found with the MYTO II model
stems from a miscalculation of the Capacity Charge component of the
Wholesale Generation price. On its own, not taking into account any of
our aforementioned adjustments in underlying assumptions, this error
resulted in the calculated tariff being c.30% lower that it should
been. This error affects successor gas GenCos, new entrant gas GenCos
(IPPs selling electricity to the grid), new entrant coal plants and successor
hydro plants.
Instead of calculating the Capacity Charge on the basis of naira per MW

per Hour, the model used naira per MW per Month. Table 29 and Table
30 show the MYTO II figures and the corrections which converts the
per MW/month charge into per MWh by dividing the former by the
number of hours in a month.
Table 29: Miscalculation in MYTO II Model Underquotes Capacity Charge Tariff by c.30% - Successor Gas GenCos
Units 2012 2013 2014 2015 2016

MYTO II Capacity charge '000/MW/month 3,515 3,789 4,084 4,403 4,747
MYTO II Energy charge /MWh 5,389 5,758 7,290 7,944 8,658
MYTO II Wholesale contract price /MWh 9,563 10,257 12,140 13,172 14,296
CORRECTION MWh not MW/month Units

Capacity charge /MWh 4,812 5,187 5,590 6,027 6,498
% Underestimation of Tariff -27% -27% -27% -27% -27%
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Table 30: Miscalculation in MYTO II Model Underquotes Capacity Charge Tariff by c.30% - New Entrant Gas GenCos
Units 2012 2013 2014 2015 2016

MYTO II Capacity charge '000/MW/month 4,359 4,701 5,071 5,470 5,902
MYTO II Energy charge /MWh 5,568 5,951 7,499 8,169 8,902
MYTO II Wholesale contract price /MWh 10,743 11,534 1,350 14,665 15,910
CORRECTION MWh not MW/month Units

Capacity charge /MWh 5,967 6,435 6,942 7,488 8,079
% Underestimation of Tariff -27% -27% -27% -27% -27%
Allocation for Ancillary Services is Grossly Inadequate

The MYTO Model only allocates 1.5% of revenues of the system to
Ancillary Services. In an electrical system at the stage of development
that Nigerias is, at a bare minimum 10% of revenue needs to be put
towards Ancillary Services. Thus the under-provision understates the
Revenue Requirement of the sector.
Ancillary Services consist of system capacity allowances vital to the

stability of the entire electrical network. They include:
Spinning Reserves: This is back-up energy production capacity which

can be made available to the system operator (for transmission) within
ten minutes of a power system failure and can operate continuously for at
least two hours once brought online. It is done by increasing the power
generation output of power plants already connected to the system.
Voltage Support: This is used to maintain the voltages in the

transmission system within a secure, stable range. It is an essential
service for the security of equipment and people. Its proper management
ensures cost and operational efficiency of the transmission system.
Black Start Capability: It is the process of restoring a power plant to

operation without relying on power from the grid in the event of a major
system collapse or system wide blackout. In the event of a power
blackout, black start system capability is critical.
Transmission Capex Insufficient for Actual Requirements

Capital expenditure on transmission feeds into the TUOS charge
component of the tariff however MYTO II only assumes 56 billion
(US$350 million) per year for the capital which is less than a quarter of
The Roadmaps (and the industrys) estimate of US$1.5 billion per
year over the next five years.
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In the Transmission Tariff Order, NERC expressed reservations with the

capital expenditure figure initially provided by the then management of
TCN when MYTO II was being prepared. So much so that it rejected the
figure presented on the basis that TCNs management had not be able to
justify its projected figures to NERCs satisfaction. As a result, NERC
nominally included the 56 billion figure in the MYTO II Model in the
expectation that when Manitoba Hydro International took over the reins at
TCN, they would be able to provide and justify capex projections.
Distribution ATC&C Losses Assumptions Too Low

The starting point for Aggregate Technical, Commercial and Collection
Losses assumed in the Model is too low based on the Opening Loss
levels given by the BPE. The figures provided by the BPE are the levels
on which bidders for DisCos were to benchmark their 5-year ATC&C Loss
reduction targets in 2013 (Table 31 and Table 32).
It has transpired that the reality faced by the new owners of the DisCos
upon taking control of operations was far worse than the BPE figures.
This is discussed in detail in Chapter 13: Systemic Risks (page 129).
Table 31: MYTO II ATC&C Loss Assumptions Table 32: Opening ATC&C Losses
(GWh) 2012 2013 2014 2015 2016 Successor DisCo Opening Loss
Energy received 26,830 36,587 44,201 49,128 51,568 Abuja 35%
Energy billed to customer 21,249 29,964 37,412 42,948 45,560 Benin 40%
Energy sales collected 19,975 28,766 36,664 42,089 44,649 Eko 35%
Agg. Tech. & Commercial Loss 21% 18% 15% 13% 12% Enugu 35%
Collections Loss 6% 4% 2% 2% 2% Ibadan 35%
ATC&C Losses 26% 21% 17% 14% 13% Ikeja 35%
Source: NERC Jos 40%
Kaduna 40%
Kano 40%
Discrepancy between the MYTO II Model and the BPE
Port Harcourt 40%
Figures on which bidders for the Successor DisCos based
their ATC&C Loss reduction targets. Achievement of Yola 40%
these targets is one of the performance obligations of Average 38%

Source: BPE
the Successor DisCos and their Investors.
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Chapter 13:
Systemic Risks
We have identified three main systemic risks relating to:
1. Load allocation between the DisCos by the System Operator;
2. Implications of the delay in declaring the Transactional

Electricity Market (TEM) and operation of the Interim Rules
Period (IRP);
3. Legacy issues of the monitoring and reporting standards of

the old system; notably the discovery that the state of the
newly-acquired assets was worse than investors expected,
based on information provided to bidders in the Data Room.
Load Allocation Mechanism

Load allocation of the first 3,200 MW among the 11 DisCos is based on a
number of factors including projected demand. The limited amount of
energy available has necessitated the System Operator (SO) having a
system to ration between the DisCos. The DisCos will be evaluated and
scored on achievement of minimum customer service performance
standards and NESI Key Performance Indicators (KPIs). The criteria used
and their respective weightings are depicted in Chart 27.
While some of the criteria have more objective parameters than others,
there is still a significant degree of subjectivity in the evaluation criteria.
This is an area of concern, in our view, due to the potential for political and
other vested interests to use this an opportunity to create a bias in favour of
one or other DisCo. The political in-fighting that already has been
demonstrated over the Manitoba Hydro International matter and the
machinations surrounding the composition of the TCN board does not bode
well in our view.
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Chart 27: Weighting of Energy Allocation Evaluation Criteria
5% Reduction of losses
15% Attainment of metering targets
15% Customer service ratings based on

biannual customer surveys
30% Achievement of distribution network

expansion targets
35% Distribution Capacity
Source: NERC, CSL Research
IRP and Delay in Declaration of TEM

The winning bidders of the successor GenCos and DisCos were
announced in February 2013. These new owners were due to be handed
full control of the purchased assets on 1 November 2013 after which there
was to be a 4 month shadow-management period. In the months leading to
the handover, some stipulated conditions-precedent to declaration of TEM
(originally planned for October 1 2013) were still outstanding. So as not to
stall the handover of the Successor Companies to the new owners on
November 1, NERC developed a set of Interim Rules to govern the market
in the pre-TEM, post-handover market. The Interim Rule Order (IRO)
committed to a maximum duration of the IRP of 3 months. The IRO was
issued in December with retroactivity to November 1.
The 3-month deadline has come and gone and the market continues to
operate under Interim Rules with no firm indication on when it will end and
TEM will begin. The prolongation of the IRP creates several problems for
the new owners of the Successor Companies because:
1. The expected, unbundled market with NBET and TCN as the link
between GenCos and DisCos is yet to become effective. There is little
difference operationally between the previous vertically-integrated
PHCN market and the status quo. A no-mans land post-handover is
not what investors and the market subscribed to;
2. The no-mans land situation has been compounded by discoveries

made by the new owners relating to the state of the assets themselves
and concerns raised over the validity of certain agreements central to
the privatisation.
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No-Mans Land Suffocates Cash Flow Management

While the bidders of the Successor Companies were not permitted to use
the target companys assets as surety to raise funds for the bid process,
they were permitted to secure contingent finance against the cash flows.
The anniversary for repaying these loans is in August 2014.
Operation of the Interim Rules

At the heart of the matter, the operation of the IRO itself can negatively
impact the sustainability of the NESI. Clause 3 of the IRO states that:
During the Interim Period, PPAs and Vesting Contracts executed by

the Successor Companies shall not be effective.
This has profound implications for cash flows expected by the owners of
the Successor Companies, not least:
i. Ultimately it means that the Successor Companies cannot raise the

project or corporate finance to fund capex and their operations as
expected because banks will only lend to them if they have
bankable PPAs, Vesting Contracts, GSAs, etc which underpin
their respective business plans.
ii. The MO handles settlements as before. The MO invoices and receives

payments from Successor DisCo on behalf of Successor GenCos and
IPPs. In the event that DisCos do not pay invoices in full, GenCos do
not get full payment but are settled based on an Allowable Revenue
formula to arrive at a Minimum Funding Requirement.
Table 33: Allowable Revenue During the Interim Rules Period
The adjustments made to the Revenue Requirement (RR) that underpins MYTO II
for the MO to arrive at the allowable amount of funding are as follows:
DisCos
Fixed and variable costs 20% of MYTO II revenue requirement
Admin costs 100% of MYTO II revenue requirement
Return on Capital 50% of MYTO II revenue requirement
Depreciation 10% of MYTO II revenue requirement
GenCos
Energy charge 100% of energy generated and supplied to grid
Capacity charge 45% of Available Capacity
Those that have existing PPAs which would have been operational during the IRP
will have any difference reimbursed once TEM is declared.
Other Service Providers

TSP 70% of MYTO II market revenue
NERC 70% of MYTO II market revenue
MO 60% of MYTO II market revenue
SO 60% of MYTO II market revenue
NBET 20% of MYTO II market revenue
Source: NERC
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iii. NBET, purportedly, is meant to make up for any shortfalls in PPA

amounts for GenCos (IPPs and Successor GenCos) that have
effective PPAs during the Interim Period. We believe this to be at best
an ambiguous provision because Effective Contracts for the purpose
of the IRO are those that for which all conditions-precedent have been
met. Furthermore, it is unclear where NBET is going to get these funds
from as not only are there concerns over if and how the FGN subsidy
will be disbursed during the IRP, the other purported sources of funds
appear less than certain at this stage, in our opinion.
Power Shortfall the Gas Supply Red Herring

During the IRP GenCos are now expected to pay for their gas supplies
directly. This contrasts with the former practice where the MO deducts gas
costs from the GenCos receivables. Gas is supplied on a take-or-pay basis
so come what may, the GenCos must pay for their gas offtake obligations
under their GSAs. Other than the take-or-pay arrangement, the gas
suppliers have willing buyers for any gas not taken up by the GenCos.
Furthermore, those willing buyers will purchase the gas at market prices as
opposed to the GenCos which pay the DSO price for gas.
An operating fact of the IRP (and one of the main reasons that necessitated
an IRP in the first place) is that NBET and the MO are not functioning (or
funded) as they should and were expected to be at that time. In particular,
as previously stated, they are not paying for all the capacity generated by
the GenCos nor making up shortfalls in the PPAs. Caught between a
proverbial rock and a hard place, the GenCos cash flows are strained.
Shortfalls in settlements meant gas suppliers werent being paid,
everybody owes everybody money. This eventually resulted in the gas
suppliers turning off/limiting flow from their taps to the GenCos, hence the
recent decline in generation.
In Chapter 9: Gas Supply Fuel-to-Power (on page 101), we talked about

the 2 August 2014 announcement made by the FGN via the Ministries of
Power and Petroleum and NERC on the upward revision of the DSO gas-
to-power price. In the same announcement it was stated that in conjunction
with the Central Bank of Nigeria (CBN), they would be setting up a facility to
settling outstanding gas-to-power debts owed to the gas suppliers,
estimated at 25 billion (US$156.3 million). These developments are
certainly welcome; however it is very early-days. Moreover, the precise
mechanism for managing this process is yet to be finalised as the CBN
plans to engage the banking sector in the bid to settle these accounts.
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Figure 36: Gas to Power Cash Flows
Gas Gas
Supply
Producers / Bill
GenCos Transmission
Transporters
Gas Transmission
TUOS
Payment Payment Bill
PPA
PPA
DisCos
Bulk Payment
Trader
Bill Bills
Payment
Customers
When Is A Contract Not A Contract....?

Numerous inconsistencies in the Industry Agreements and operating
manuals signed between the investors of the successor Companies and
the authorities have come to light. There are inconsistencies within the
same document and between the documents and the MYTO Financial
Model. The range spans from typographical errors on Units of
measurement, wrong calculations and formulae to ambiguous and
contradictory terms.
These are legal documents on which investors have based their decisions.
Consequently, other legal documents at the heart of transactions in the
privatisation have incorporated these inconsistencies. The effect of each
error individually and collectively could be of sufficient degree to argue that
some of these contracts could be rendered void or voidable at law. As they
stand, these transaction documents, which are essential to raise finance
are not bankable.
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Reality of Acquired Assets Worse Than Expected

We have already discussed concerns regarding the assumptions used in
MYTO II as they stand. Notwithstanding, the new owners and NERC have
discovered that the reality has been far worse.
When Is A Data Room Not A Data Room...?

The Successor GenCos were sold to the highest bidders. On the other
hand the BPE set the price for each successor DisCo and based the
selection on the basis of the bidder with the highest reduction in ATC&C
Losses in their business plan for a particular DisCo. It was generally
accepted that the information required to conduct due diligence on the
Successor Companies provided in the Data Room was not entirely
accurate. With this in mind, bidders made what they thought were
adjustments for this in their valuation of the assets. However even these
adjustments proved to be insufficient.
There was reassurance from NERC that if after the handover of the assets
a winning bidder discovered any liabilities that had been overlooked in the
transfer of PHCN liabilities to NELMCO, this will be rectified. Furthermore,
the IRO stated that NERC will review the tariff and make adjustments that
are to be implemented at the start of TEM.
In NERCs defence, it has been in a running battle with the old PHCN
culture on transparency and reporting. When NERC embarked on its
mandate in 2005, it required PHCN to carry out an audit of the entire
industry statistics, financials, etc for all successor DisCos, GenCos,
infrastructure and tariffs. The information provided was used as the basis to
plan the new regimes of the NESI including MYTO. As we discussed,
PHCN had to redo its homework, and MYTO II was one of the outcomes of
the re-submitted data.
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Table 34: The Reality of the Successor Companies Has Been Worse Than Expected
SOURCE
OF ISSUE CRITICAL ISSUE DISCOVERED CURRENT IMPACT
1. Miscalculation of Wholesale Tariff 30% cut in Capacity payments
2. Tariffs are based on an assumption Successor Companies are not earning as much as they
that there will be c.4,500 MW of projected in their business plans
capacity by now. The reality is has
MYTO II costs and WACC assumptions are not in-line.
been more than 35% short.
3. Customer numbers for the DisCos Range of disparities discovered is between 15-35%
are inaccurate
4. Customer segmentation is not R1&R2 tariffs are subsidised by the FGN. Customer groupings
suitably balanced need to be reclassified because it looks like R2 is too wide as
some well-off customers appear to be categorised as R2.
M YTO I I
5. Transmission losses are much higher MYTO II assumes 8.05% but the reality is over 13%
than stated
6. ATC&C Losses are much higher than MYTO II assumes ATC&C losses for the system to be 21%.
stated DisCos are reporting ATC&C losses of 50-70%.
DisCo ATC&C loss reduction targets are based on a starting
point of between 35-40% depending on the particular DisCo.
Each winning bidder's 5-year loss reduction target was
incorporated into the performance targets in their Performance
Agreement. But with a 10-20% discrepancy in the baseline, the
performance targets of the DisCos are not achievable.
7. Available generation capacity of More capital expenditure than expected could be required to
some generation assets are less than renovate the assets. Each winning bidder's 5-year generation
expected capacity target was incorporated into Performance Agreements.
The baseline will need to be re-set.
8. Successor Companies are being paid Under the Interim Rules, the MO only pays the equivalent of
less than the Revenue Requirement 60% of the Revenue Requirement. Note the Revenue
as indicated in MYTO II Requirement is based on 4,500 MW. The reality has been well
under 3,500 MW.
The rate paid for energy in MWh has been cut by c.20% as part
of efforts to manage cash flow in the system in the interim.
9. Estimated billing and transfer pricing Under TP there is no capital recovery at all. Total cost of
in operation generation and transmission are fixed on a de minimis standard.
Under the current attenuated state of operations, there is limited
Int er im Ru l es
if any scope to recover central costs. Low collection efficiency of

the system makes the squeeze even tighter.
In the current working environment where delivered energy is far
less than planned, and issues with metering and collections
persist, the DisCos may be slightly better off with estimated
billing in some respects.
10. GenCos are only being paid for a GenCo cash flows have been squeezed and they have struggled
fraction of their capacity. to pay their gas suppliers as during the IRP GenCos pay their
gas suppliers directly rather than via the MO.
They are also not being paid for
capacity (MW) power stations are to Not surprisingly, as they are already paid short on MW for power
reserve for Ancillary Services generation, committing vital capacity to Ancillary Services could
(Spinning Reserves, Voltage be viewed as a luxury as far as their profit and loss and cash
Support, Black Start Capability). flow statements go, especially in the short term. Hence Spinning
Reserves have gone from 10-15% to 0%. As a benchmark,
Spinning Reserve in the US is between 13-20%.
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Figure 37: Transfer Pricing in the Interim Rules Period
At PPA price
IPPs
Market Operator
Clearing Accounts
DisCos Transfer MO Transfer
Successor Payments Payments Successor
Receives Transf ers
Discos At an end-user At an end-user GenCos
payments Payments
tariff deduced tariff deduced
f rom DisCos to GenCos
National energy purchase
and Eligible and service
energy sales price
price
Uniform Customers providers
Tariffs
Eligible Headquarters
Customers
Wheeling charges Transmission

System Operation
Source: CSL Research Compare with costs recovered, including capital

costs, under MYTO II Methodology shown in
Figure 15 on page 23.
Figure 38: The Theory of Transfer Pricing There is No Recovery of Capital Costs
Generation Transmission Distribution
Px 1 Px 2 Px 3 Distribution Px 4
Generation Transmission O&M
O&M costs Wholesal costs End-User
O&M costs
e Price Tariff
The Theory of Transfer Pricing (TP): TP is used to arrive at Px 4. Only operating costs are used to determine Px.
There is no capital cost recovery.
Px 1 and Px 2 are f ixed based on minimum f unds required to keep the entity operational i.e. a de minimis standard. Px 3 is determined
every 3mths in line with projected improvements in revenue management.
TPs are ultimately derived f rom and limited by DisCo takings based on the end-user tarif f which in Nigeria were f ixed, national unif orm
end-user tarif f s. But if the tariffs are not cost-reflective, full cost recovery of generation, transmission and distribution O&M
costs is not possible.
Historical low collection ef f iciency in the system makes the squeeze on the Successor Companies margins even tighter under TP.
The only way to recover central (HQ) costs under a TP regime is through improvements in revenue management (i.e. ef f iciency) beyond
projected levels.
Px Distribution Px
O&M cost
4 3
Px Wholesale Price of...

Px Px Px O&M Operations and Maintenance
3 2 1
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Hobsons Choice Take It or Leave It

The stark reality of the due diligence and bidding process is that the bidders
and other stakeholders in the industry were given very limited amount of
time to review and comment on documentation. The FGNs approach was
essentially that there were a vast number of documents (PPAs, VCs, GSA,
GPO, Market Rules, Grid Code, etc, etc) and there wasnt much room for
negotiation. The FGN was only willing to budge minimally on the issue of
risk allocation.
It was not an altogether comfortable state of affairs but the bottom line as
far as the FGN was concerned was that potential investors could either
accept the process and documents as they were (with the minor FGN
concession on review) or not get involved at all. It is little wonder that this
amount of uncertainty and obfuscation put off international banking
institutions from participating directly in the bidding process.
Amidst protests, and wanting to keep to its schedule, the FGN made a
concession by appending a review clause which stated that based on
certain conditions, key documents such as PPAs and VCs can be reviewed
within a year. This was signed in February 2013, so technically-speaking,
this window has now closed. However we understand that pragmatism has
prevailed and negotiations are ongoing.
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Chapter 14:
Structural Risks
We have identified two main structural risks associated with:
1. Investment in TCN and investment by TCN in the expansion

of the transmission network.
2. Gas supply and transportation.
Transmission GenCos & DisCos at the Mercy of the FGN

TCN is in charge of transmission wheeling power around the grid and
installing transmission lines. For reasons outlined in Chapter 8: , it remains
in government hands for the foreseeable future. One of the main reasons
the FGN privatised the sector was because NEPA/PHCN had not kept up
with investing in the electricity transmission infrastructure the critical link
between generating and supplying electricity to the end-user. Our concern
here is that the NEPA/PHCN pattern of non-performance will continue.
Generation and distribution are now in private hands. Private companies

have their shareholders and lenders to answer to for the profitability of their
businesses. The figurative and literal bottom line for the GenCos and
DisCos is that if they do not supply electrical power to the end user, the
consumer, they will not make money. But they are not in complete control
of one essential element needed to attain and then increase profitability
transmission. If the power generated is not delivered or transmitted around
the national grid, cash does not flow as expected in the system. Consumers
pay a fixed charge which covers 75% of the DisCos costs/payments, but
they also pay for the amount of electricity they receive by way of an energy
charge. It only takes so long of not being given the service for which the
fixed charge is paid for the customer to begin to protest and refuse to pay
thereby putting the stability/viability of the entire system at risk.
TCN is obligated to network build-out targets under the Industry

Agreements signed with the GenCos and DisCos. In the event of non-
performance, NERC has penalties it can impose and the DisCos and
GenCos have some legal recourse. Notwithstanding, in the meantime,
expenses must still be settled, debt must still be serviced.
Wide Impact of Harvesting Low-Hanging Fruit

As far as the main body of the current transmission infrastructure is
concerned, if brought to optimal wheeling capacity, it is capable of
transmitting 6,000 MW of power, which is practically twice as much
electricity currently being supplied. Getting to 6,000 MW wheeling capability
is the low-hanging fruit for TCN, the easy win. This will make a noticeable
difference to the end user. Experiencing such an improvement in electricity
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supply will give confidence in the system and make further tariff increases,
which are invariably necessary, much easier for the end customer to
stomach.
Financing TCN
Less than 40% of the country is connected to the National Grid and about
US$1.5 billion per year over the next five years needs to be invested in the
transmission infrastructure in order to make the system more reliable and
stable. In Chapter 8: (Chart 17, page 91) we explained that on a five-year
view, TCNs capital requirement is over US$780 million short. Additional
sources of funds might come from bilateral arrangements, via funding
consortia and turnkey solution providers.
Chart 28: External Sources of Funds for TCN, 2013-2017
African Development
Bank
Agence Franaise de
World Bank/China Dveloppement^
Loan
China Exim Bank*
FGN 2013 US$1bn

Eurobond Issue
Islamic Development
Bank
Japan International
Co-operation Agency"
NDPHC transaction
investment
Source: The Roadmap, CSL Research

^ France's overseas development agency.
* Part of the trio of Chinas finance institutions designed to promote state policies in foreign trade,
industry, diplomacy and economy, and promote Chinese products and services. Of the trio (China
Development Bank, Exim and Sinosure), Exim is the sole provider of Chinese government
concessional loans.
Japans overseas development agency.
NDPHC - Niger Delta Power Holding Company, the parent company of the NIPP power plants.
i. Sovereigns or Copper?
With TCNs chequered track record of financial management, we believe
that the FGN will have to be prepared to take on the credit risk of TCN for
some time. This being the case, investors may rather take on sovereign risk
directly rather than taking on TCN with its uncertain return profile, should
the FGN decide to establish a commercial investment vehicle to fund TCN,
for example. The FGN could make investing in the transmission sector
more attractive by issuing infrastructure bonds or selling units in an
infrastructure investment fund, for example. The mechanics and
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configurations of these structured finance options can be complex and are

beyond the scope of this report. What we would say, however, is that
avoiding/minimising the risk of creating an arbitrage opportunity between
sovereign debt and such sovereign-backed finance structures is one that
would be at the forefront of the mind of the Central Bank and the Ministry of
Finance.
Current plans for TCN factor in US$125 million FGN budget appropriation
per annum but in our view this is likely to prove overly conservative.
ii. NIPP injection in question

We also understand that TCN has assumed that US$1.6 billion of NIPP
transmission assets will be transferred to TCN in exchange for shares in
TCN. But this is by no means a certainty as we presume the winning
bidders will need to agree to take equity in TCN in exchange for their
transmission assets. This may well be a tough sell for the BPE because
one of the advantages and strengths of the NIPP companies vis--vis
others is that they also have control over transmission in their locale.
iii. Rural Electrification Programme

Rural electrification is less than 20% and the FGN has a target of 75% by
2020. Wary of rural areas getting neglected in the expansion of the
distribution networks, the Electric Power Sector Reform Act 2005
established the Rural Electrification Agency to regulate the expansion of
electricity in rural areas.
The Rural Electrification Programme is funded separately by the Rural

Energy Fund and we would expect TCN to benefit from co-ordinated build-
out plans. However cost synergies might be elusive in the medium term
because of the REAs poor track record of meeting key performance
milestones and effective financial management. Its chequered history
includes a portfolio of over 1,500 unfinished rural electrification projects.
The REA has been restructured recently and a new Light-Up Rural
Nigeria strategic plan was inaugurated by President Jonathan at the start
of the year. However only time will tell...
iv. The United States Power Africa Initiative

Another source of funding for TCN, as well as other operators in the sector
is the US Power Africa initiative launched in June 2013. It aims to double
access to power in Sub-Saharan Africa and has committed US$7 billion
over the next five years (to 2018) to six African countries including
40
Nigeria . Financing provided under this programme will be in the way of
financial support and loan guarantees. The US and other international
finance institutions such as the World Bank and the African Development
Bank together constitute a US$21 billion project finance, direct loan and
equity investment package aiming to increase power generation in sub-
Saharan Africa by 10,000 MW in the next five years.
40
Others are Ghana, Liberia, Ethiopia, Kenya and Tanzania)
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Figure 39: 6 African Countries in the US Power Africa Initiative
Ghana
Liberia Nigeria
Ethiopia
Kenya
Tanzania
Man Management The Old Guards Last Stand?

The FGN has brought in Manitoba Hydro International to manage and
implement a root and branch overhaul of TCN a very commendable and
astute decision, in our view. However as we outlined in Chapter 8: the early
days jamboree surrounding their appointment, ongoing political interference
with the composition of the supervisory board and operational brick walls
over control of the Market Operator budget all make us concerned that the
old guard is more entrenched than we would like or indeed than it should
be permitted to be. A management contractor must be left to bring in and
implement to the full extent the expertise and skill for which it was hired. If it
is failing in that role, contractual terms provide the avenue for it to be
replaced by a more suitable firm.
As with other key institutions such as NERC, in our opinion the FGN would
be following a recipe for failure if they are not left to operate as they are
designed to do, without political or vested interest interference. The rules
and regulations to ensure transparency and accountability are already in
place and are well detailed (as such regulations usually are in Nigeria).
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Gas Supply and Transportation
Additional GSA Will Be Required

The Successor GenCos were sold with Gas Supply Agreements. But the
GSAs only cover the pre-existing available generating capacity and not
installed capacity. Available Capacity of the Successor GenCos was at
about 40% at the time of sale so the successor GenCos will need to
negotiate additional GSA, GTA etc with gas producers as they increase the
Available Capacity of their plants towards Installed Capacity. Raising
Available Capacity closer to Installed Capacity is an obligation contained in
the Performance Agreement.
The new GSAs will not be on the regulated (DSO) price as supplied by the
Gas Aggregation Company of Nigeria (GACN). They will be bilateral
contracts between the GenCos and the gas producers on a willing buyer-
willing seller basis, at a commercial price.
Chart 29: Installed vs Available Generation Capacity (MW)
1,320
1,020
900
776 760
600
414
880
361 359 393

228
45 135
Af am Egbin Geregu Kainji Sapele Shiroro Ughelli

Power Power^ Power Hydro Power Hydro Power
Installed Capacity (MW) 2011 Available Capacity (MW)
Source: BPE, CSL estimates

^ Not included in 2011 BPE presentation. Figures from market sources.
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Gas Supply Contracts Set On Take-Or-Pay Basis

The payment and settlement terms in GSAs are on a take-or-pay basis. In
other words, as long as the gas producer/supplier is ready and able to
supply the amount of gas contracted for, the gas must be paid for. Fuel
costs are passed through to the DisCos and ultimately to the end customer,
so the DisCos bear the payment risk.
Gas Transportation Infrastructure Adequacy is of Concern

The current gas supply infrastructure is just adequate to support 4,000-
5,000 MW of power generation. Thereafter, especially beyond 6,000 MW,
there will need to be a significant increase in investment in gas
transportation infrastructure.
GSAs are typically of 10-15 year duration so gas producers make

investment decisions based on the GSAs they enter into. The contract price
takes into account any infrastructure investment that is required such as
gas pipelines to the buyers facility. Thus those plants that are closer to the
gas producers processing facility are likely to get more favourable prices.
Beyond a certain distance, the gas is transported via the FGN-owned
Nigerian Gas Companys (NGC) transportation pipeline network.
Investors should note that the Gas Master Plan is expected to address the
infrastructure issue, but the GMP:
(b) Has been behind the curve from a pricing and market operations
perspective. In fact market participants expect the relevant sections of
the Petroleum Industry Bill that relate to gas too be drafted to reflect
current practice; a case of the tail wagging the dog.
(c) Has manifested little success in building out infrastructure in line with
targets in the named Strategic Sectors such as power and gas-reliant
manufacturing.
The market is already leading on the commercial trading/open market

aspects so for the time being we believe it makes more sense for the raison
dtre of GMP to be a gas infrastructure plan. Regulatory oversight can
remain with the Department of Petroleum Resources or put in the hands of
a separate independent regulator, as was done with the creation of NERC
for the power sector.
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3-year Countdown to Gas Supply Crisis Started Yesterday

The supply shortfall will come to a head in about 3 years time if a radical
effort is not put into expanding the gas pipeline infrastructure. Demand for
gas-to-power is going to more than double to 3 BCF per day by 2017. And
it takes 3 years to make the investments in plant facility, gas transportation
infrastructure etc.
Recently-issued NERC regulations state that no new IPP licences are

going to be issued until the operator has secured core industry agreements
such as GSAs and GTAs. This ought not to be a hindrance in the short
term as most of the new IPPs being built over the next few years will be
situated near the gas facilities. They should therefore by-and-large not have
to rely on the infrastructure-building efforts under the GMP.
We have stated that the Successor GenCos were sold with GSAs already
in place for the available capacity at the time of sale, so they are covered.
The NIPPs will be sold with GSAs but it is not yet clear if this will cover all
their generation. It will take the NIPPs and Successor GenCos 2-3 years to
reach optimum capacity and hence peak fuel demand. In the meantime the
IPPs being constructed will also be competing for gas. We believe that this
increase in competition will invariably have the effect of raising gas prices.
Cash Effect of the Infrastructure Gap

In the chapter on MYTO (Chapter 5: ) we described end-user tariffs as
consisting of a fixed charge and an energy charge. The fixed charge of the
end-user tariff only covers 75% of generation and transmission costs. It
covers the GenCos capacity charge and the DisCos transmission and
O&M charges.
The fixed charge cushions against Availability Events that reduce the
amount of electricity generated. Availability Events could be due to issues
with gas infrastructure affecting supply to the GenCos or problems with the
transmission infrastructure affecting off-take/evacuation of electricity which
could result in the plants scaling down production. This would have
implication for cash flow and ultimately profitability.
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Chapter 15:
Financing the Power Sector
Over the next five years, the Nigerian power sector will need to raise
US$13-15 billion for capital expenditure in transmission, distribution and
generation. Another US$7.5-10 billion is required for supporting gas
infrastructure. Of these amounts, the FGN is responsible for US$800 million
which it has committed to NBETs capitalisation fund for its proper
functioning. The FGN is also responsible for the US$1.5 billion annual
requirement for transmission infrastructure and US$1.5-2 billion per annum
for the gas infrastructure. The Successor GenCos and DisCos require a
capex spend of US$5-6.5 billion over the next five years.
The privatisation of the Successor GenCos raised US$1.65 billion for the
FGN, while the Successor DisCos raised US$1.46 billion, hence there
should not be any conceivable financial reason that the FGN cannot fund
NBET. Furthermore, in February 2014 TCN announced it had received
US$665 million of funding for transmission projects from various
41
international finance agencies and from the FGN budget allocation .
Bank Exposure in Acquisition of Successor Companies

Questions have been raised about the extent of the exposure of domestic
banks to the power sector due to the fact of the operations of the
Successor Companies were not as expected and that the duration of the
IRP is open-ended.
The investors in Successor Companies

were not permitted to use the target assets
as surety for monies borrowed to fund their
bids. However, they were permitted to use
their prospective shares in the target
companies and/or also prospective cash
flows from the operations (a type of bare
securitisation instrument) based on their
business plans and financial projections.
For those who pledged shares or cash
flows, the lending banks typically also
required secondary form of recourse using
on non-target related assets of the
investor.
Due to the perceived high risk profile of the

industry the new institutions had no track
record of creditworthiness, NEPA/PHCNs
41
See page 78 for sources of TCN funds.
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history of operational and financial management was abysmal and some

early-day concerns thrown up by political interference and contractual
irregularities banks were reluctant to get involved. It is one thing if the
borrower is looking to invest in an already profitable enterprise, even
without security against the target assets. It is quite another looking
to put money into one of the most defunct ex-government enterprises,
in an untested new regime, which was still going to rely on the same
FGN involvement at the critical points in the value chain. Thus it came
as little surprise that the only banking institutions involved in the
privatisation were local. We also understand that all but one or two of the
technical partners in the consortia were involved in financing the bids.
So far, local banks have invested over 750 billion (over US$5 billion) in
the power sector (privatisation, rehabilitation, other power-related assets,
etc). But the major spend is capital expenditure from here
How Big is the Pool of Finance Available for the Sector?

Theoretically speaking, in the world of cross-border financing and free
movement of capital, the answer to the question is, As big as it needs to
be. In the wake of the global financial crisis, balance sheets of have been
rebuilt, Long Only funds have built up higher cash balances which they now
want to put to work, trade buyers are looking further afield to acquire growth
and international development agencies have begun to step up their
commitments. Add to this the renaissance of Africa as a place to do
business, in particular sub-Saharan Africa and the continent does not seem
as remote as it did a decade ago. There is no denying that risks are higher
than in more developed markets, that fact is inherent in its classification,
hence investors require higher returns for taking on the extra risk.
However, irrespective of how attractive the macro and sector fundamentals

look, the sector (and country) has to compete with other calls on
international finance other sub-Saharan Africa countries and sectors,
other fast-growing regions in the world. International financial investors
will not buy alpha (growth/performance) at any price, even those that
invest in emerging and frontier markets which have higher risk
profiles. There are certain basic requirements that need to be in place, and
that are robust enough legally and structurally. These all go into the
investors assessment of the risk profile of the market.
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Financing and Risk Matrix for Nigerian Power

In Figure 40 we have set out a financing and risk matrix to indicate the
sources or pools of finance that become available as the risk profile of the
sector/market changes. Individual sectors within a particular market can be
deemed to have higher risk profile than the overall market. It is arguable
that at the onset of the power sector privatisation, the sector had a higher
risk profile than the Nigerian market as a whole it was a sector on its
knees, it was unprofitable, it was having a completely new, untested regime
introduced and the FGN was going to keep control of vital aspects of the
system.
Figure 40: Power Sector Financing and Risk Matrix
STAGE I STAGE II STAGE III

$$$
Financing/Risk Disconnect? The size of capital required for International Private

the Nigerian power sector is of Stage III proportions. However Equity Investment
these doors tend not to open if the market and/or execution Funds, Sovereign
risks are perceived to be high. Wealth Funds
International
Development
FINANCE CAPITAL
Agencies
International
Banks
Government, Frontier NOTE:

Local Banks Market Funds The spheres are not proportional but merely representative of the size of the
& Local particular pool of capital.
Private
The balance between government and other sources of finance shifts to the latter
Sector during later stages.
In the later stages, projects tend to be large and require greater capital
commitments beyond those available from the State. Furthermore, local financial
institutions do not have large enough balance sheets to absorb the funding
$ needs of this stage. Hence the demand for external borrowings increases.
High MARKET RISK Low

[EXECUTION RISK]
E Government Government Government

Q Local private sector Local private sector Local private sector
Foreign & local trade Foreign & local trade partners
Typical IRRs U
of 15-20% I partners Frontier market funds
Frontier market funds Global emerging market funds
T Pension funds
Y Capital markets
Debt service Local banks Local banks Local banks

coverage Development Finance Regional banks
ratios of up Institutions (DFI) International banks
D Multilateral agencies Development Finance Institutions (DFIs)
to 1.5-2.0x
E Multilateral agencies
may be
required B Export credit agencies
depending T Capital markets
on position in Sovereign Wealth Funds
value chain. Private Equity
Infrastructure funds
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Characteristics of Power Sector Financing
Table 35: Characteristics of Power Sector Financings
Term of debt depends on the project, plant time and location

Long Tenor Recent financings have called for 8-30 year term debt.
Bridge funding is available but is expensive
Amount of debt to equity banks would permit is constrained by the forecast cash flows of the
project, which are expected to service repayments.
High Leverage
Debt tends to be between 60-90% of project costs. However for the Successor Companies the BPE
has put a cap of 70% for the first 5-years.
Includes Local and international banks, DFIs and Export Credit Agencies. (See Figure 40: Power
Multi-Source
Sector Financing and Risk Matrix).
Multi-Currency Naira and US Dollar mix is recommended. However FX risk mitigation must be addressed.
Credit enhancements and supports include guarantees, warrantees and other covenants for the
project sponsor, affiliate and other third parties.
Security of Finance
Strength of the guarantee ensures the transaction secures the optimal debt structure (pricing, tenor,
etc.) and demonstrates commitment from the sponsor.
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Key Documents in Nigeria Power Sector Financing

These are some of the key documents that are required to be in place for
financings in the Nigerian power sector:
Table 36: Documents Essential to Securing Power Sector Financing
Document Application
Share Sale Agreements DisCos and thermal GenCos
Equity financing commitments
Share transfer restrictions
Dispute resolution
Concession Agreements Hydro GenCos
Gas Supply and Aggregation Agreements Gas-fired GenCos
Gas Transportation Agreements Gas-fired GenCos
Power Purchase Agreements GenCos 15-years typical
Includes plant specifications and performance standards
Penalties for late commissioning or failure to meet performance targets
Revenue write downs for under performance
Default and termination provisions
Details of credit quality of the off-taker and payment guarantees.
Vesting Contracts DisCos 15-years typical
Includes plant specifications and performance standards
Penalties for late commissioning or failure to meet performance targets
Revenue write-downs for under performance
Transmission Use of Network System Agreements DisCos and GenCos

Grid Connection Agreements DisCos and GenCos
Ancillary Services Agreements GenCos
Bulk Trader Credit Support A combination of FGN letter of support for NBET meeting payment
obligations and the World Bank/AfDB Partial Risk Guarantees
Deed of Assignment of Pre-Completion Receivables Successor DisCos and GenCos
Operations and Maintenance Agreement Allocates operational risks
Details penalties and incentives
Operator must be bankable i.e. credit-worthy and experienced
Pre-Completion Liabilities Transfer Agreement Successor DisCos and GenCos
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Cost of Capital in the Power Sector MYTO II

One of the components of the Revenue Requirement for the sector used to
arrive at the tariffs is the Weighted Average Cost of Capital (WACC). It is
included so that the tariff takes into account a return on the value of capital
invested in the Successor Companies. NERCs objective was to arrive at a
figure that attracts investment funds into the industry but is not sufficient to
produce super profits.
The MYTO Model uses the Capital Asset Pricing Model (CAPM) to
calculate the WACC. WACC provides an estimate of the returns on equity
and debt. The returns to equity in the power sector are measured in relation
to the risk premium on the Nigerian equity market as a whole. The measure
of the relative risk of the sector to the Nigerian equity market is expressed
as Beta ().
MYTO II WACC Assumptions and Estimate

Assumptions:
Risk free rate 18%
Nominal return on equity 29%
Beta 1
Nominal cost of debt 24%
Gearing (Debt : Equity) 70:30
Total corporate tax rate 32%*
*statutory corporation tax of 30% plus 2% education tax
WACC Estimates:
Nominal pre-tax WACC 25.5%
Nominal post-tax WACC 17.3%
Power Sector Risk Relative to the Nigerian Equity Market

The MYTO Model assumes a sector Beta of 1. In other words it assumes
the risk of investing in the power sector is no higher or lower than the risk of
investing in the Nigerian stock market as a whole (i.e. market-weighted
fund). NERC has indicated that it will review the figure it uses for Beta when
enough data exists for statistically significant estimates to be made. It does
not have sufficient data because electricity supply in Nigeria is not an area
that has a history of steady supply of private investments to deduce the risk
of return relative to the market.
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While NERCs position is theoretically valid, from an investors perspective

it might be prudent to apply a Beta for the sector in the estimation of cost of
capital. The electricity generation sector in emerging markets have been
estimated to have a Beta of 1.34, while emerging market electricity
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distribution companies have a Beta of 1.28 .
Sector Return on Equity Investment
Re = Rf + e(Rm Rf)
Where:
Re Return on Equity
Rf Risk free rate (yield on 10-yr Nigerian Treasury bonds)
e Power sector risk relative to the Nigerian market
Rm Return on the Nigerian market portfolio
Rm Rf Market risk premium
Power Sector Risk Premium Factors

Some of the notable risk factors in the power sector we have discussed
which we consider would justify the application of a premium to the market
Beta include:
In Chapter 13: Systemic Risks we pointed to certain inconsistencies,

contradictions and ambiguity in key documents of the privatisation
which rendered them effectively unbankable. Hence the doors of
finance for future capex are very unlikely to be opened until this is
rectified.
We have also covered concerns over the need to rely on the FGN to
deliver on transmission and gas transportation infrastructure. As far as
the MO function goes, the machinations we have seen so far creates
grave uncertainty about whether the payments and settlements system
will be allowed to function freely and fairly.
The shortcomings of the MYTO model assumptions mean that the

Revenue Requirement, hence the computed tariffs, are too low. Yet
there is no indication that the tariff will be adjusted to reflect this before
national elections in 2015.
The open-ended IRP and the lack of a definitive date for the
declaration of TEM and the full functioning of the core institutions
of the NESI. This is the most significant factor, in our view.
The longer the transition plan stays off track, and the more unexpected
variations are introduced after the fact, the greater the uncertainty and the
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Ian H. Giddy, Aswath Damodaran; New York University Stern School of Business.
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greater the justification for a higher risk factor (Beta) to be applied to the
Nigerian power sector. Ultimately this could cripple investors ability to raise
the finance required to fund the development of the sector as doors of the
broader international sources of finance do not open until the risk level
lowers (Figure 40). Without those doors being opened, the transition and
development of the Nigerian power sector cannot come to fruition as
planned.
Has the BPE Declared Nigeria Closed For Business?

43
Under our discussion of the Progression of Economic Value in Chapter 3:
we explained how successful reform of the power sector and increasing
power generation is an immovable condition-precedent to Nigerias
transition to an industrialised economy. Thus the future profitability and
competitiveness of every essential sector/industry in the country to a
notable extent rests on the power sector and its regulatory regime being fit
for purpose. In light of this we were especially taken aback by a BPE press
release on concerns raised by local lending banks at an industry
conference on 21 May 2014.
Local Banks and the Stress of the August Anniversary

There have been general concerns over what impact the stresses in the
sector will have on the Nigerian banking industry. It is a fact that the
privatised power sector is not running as expected, resulting in significant
variations in the cash flows and profit forecasts of the Successor
Companies business plans (and incidentally the BPEs own financial model
for the industry). Thus local banks have expressed fear of default on the
loans taken out to fund the bids for the Successor Companies when
payments fall due in August 2014. The BPE press release, referring to the
fact that Successor Company assets were not (permitted to be) used as
collateral, stated:
"The banks lent to the Core Investors based on their capability to

pay. The investors are supposed to have made adequate provisions
to take care of their obligations to their financiers from the outset.
They knew that they were not going to make profit immediately on
takeover of the [Successor Companies]. Their financiers also were
44
aware of this"
We indicated at the opening of this chapter that investors could borrow

against their shares in the Successor Companies and/or against forecasted
cash flows of the businesses. These financial projections were based on
information on the fundamentals of the Successor Companies that was
provided by the BPE. The financials were incorporated into the investors
business plans and initial budgets which, naturally, were presented as part
of the loan applications. Furthermore, these financials were also an integral
part of their submissions to the BPE in their bids. The new owners would
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44
Bureau of Public Enterprise Press Release, 22 May 2014. (See Appendix 7: )
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not have been successful had their business plans not been thought to be
sound by the BPE and in line with the FGNs targets for the power sector.
The Post Acquisition Plans and Initial Budgets as shown in the business
plans presented by the winning bidders were incorporated into
Performance Agreements and other Industry Agreements signed by the
investor, the Successor Company and the BPE. So investors and their
financiers proceed on the basis that all parties will keep up with their end of
the bargain and took actions in reliance of information provided by the
various counterparties.
Many banks would have taken secondary (or primary) non-power related
collateral. But even with recourse, in the event of a default, banks will
record a non-performing loan and there are costs involved in enforcing the
claim against the asset.
The banks did not lend blind. Investors did not borrow blind. Thus in the
first instance we would agree with the BPE that [the investors] knew that
they were not going to make profit immediately on takeover of the
[Successor Companies]..[and their] financiers also were aware of this.
However, as any reasonable counterpart to an agreement would, they were
also expecting the BPE, NERC and the FGN to do what they had promised
to do. The investors did not anticipate:
(a) The degree of disrepair of the assets and other technical issues
discovered post-handover; nor
(b) That the start of TEM, with all its FGN-provided safeguards and
sureties, would be delayed so long; and
(c) That an IRP would be imposed after handover with a different set
of rules and procedures relating to operations and settlements.
The unexpected institution of a no mans land that is the IRP and the
uncertainty that currently exists leaves the investment community
feeling rather nervous. Everyone expects a few bumps along the way
in such privatisations thus stakeholders proceed on the
understanding that they will work towards resolution to get the project
back on track as soon as possible. This usually involves some give-
and-take, as there are often issues on both sides, mostly unforeseen.
However in Nigerias case, in our view the balance of responsibility is
heavily weighted on the FGN/BPE/NERCs side due to the degree of
inconsistencies and errors discovered by the new owners of the
Successor Companies after handover. (See Table 34: The Reality of the
Successor Companies Has Been Worse Than Expected).
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Long Reach of the BPEs Summary Dismissal of Concerns

The BPEs summary dismissal of what we consider to be valid concerns by
the banks has potentially a far-reaching and profound impact beyond the
power sector. At a basic level it raises questions over the BPEs regard for
the sanctity of the contracts it enters into. Another question mark is cast
over the degree of the BPEs realisation that both counterparties (FGN and
private investors) have skin-in-the-game, hence something to lose.
Finally, it sends a message of caveat emptor to the local and international

investment community considering getting involved with any FGN
privatisation. It drastically raises the execution risk of the project, which
historically has been a perennial criticism of FGN enterprises. We believe
such a stance by the BPE could threaten the FGNs medium and long term
plans to attract private investment into the power sector, which in turn will
have a knock-on effect on the evolution of the Nigerian economy.
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Chapter 16:
Investment Opportunities in the Sector
Generally speaking, the issues that persist in the Nigerian power
sector are not without precedents in other markets and can be
resolved. Thus provided there are clear indications that all the current
stakeholders are working together to get the schedule back on track,
and allowances are made for shortfalls suffered so far, the sector
demand story and macro opportunity can be fully realised.
There are a number of ways to gain exposure to the Nigerian power sector
directly (generation and distribution) and indirectly. We highlight a few of
those we believe have the greatest potential below:
Direct Investments
Other than through debt financing to the Successor Companies or taking
equity stakes, should that option become available, there are four direct
ways to invest in generation and distribution:
NIPPs
The privatisation of the National Integrated Power Project GenCos is
currently underway. We will cover this in detail in the next chapter.
IPPs
NERCs risk allocation in the industry appears more favourable to
generation companies. Provided the IPP in question does not have to rely
on the national gas infrastructure to get going, which means it will be
situated close to its gas supplier, it has better control over its potential
output. However as it will need to be connected to the national grid, it would
potentially face similar off-take issues faced by the Successor GenCos.
Independent Electricity Distribution Networks

Licences for this are granted by NERC. At the moment these are
associated with embedded generators but could be used as means to
connect rural communities to the national grid.
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Embedded or On-site Generation

In our view this currently represents the most favourable play on
generation, provided fuel supply is not an issue. The embedded GenCo is
directly connected to the distribution network operated by a distribution
licensee.
Excess power generated and not used can be sold via the national grid. It
also benefits from lower capital costs, reduced connection costs and
avoidance of the TUOS cost. The customer benefits from increased and
more reliable supply of electricity and potentially lower tariffs.
Figure 41: Embedded Generation and Independent Distribution Networks
Embedded Generation
Independent Distribution Independent Distribution
Network Network
Grid Supply Points
On-Grid Generation
Direct Supply Customer

Direct Supply Customer
NATIONAL GRID
Residential
Distribution Network
Distribution Network
Commercial
Industrial
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Small-Medium Hydroelectric Plants

They are typically 5-60 MW embedded hydroelectric power plants. Over
300 potential small and medium hydro-power projects have been identified
and feasibility studies have been carried out on 12 dams. The FGN is open
to private investors submissions of interest to invest in these projects.
Figure 42: Small Hydro-Power Plants Figure 43: Potential Sites for Hydro-Power Plants
Shiroro
Dadinkowa Mambilla
Jebba
Kainji
Gurara
Abuja
Zungeru
Makurdi
Lokoja
Onitsha
Ikom
Hydroelectric Power Plant Site

(Existing or Being Developed)
Large Hydroelectric Power Plant Site
Source: Vallibel Power Source: CSL Research
Indirect Investments A Piece Meal Approach

We believe that there are opportunities to gain exposure to potential growth
in the power sector and make decent returns other than by electricity
generation and distribution. In the immediate post-handover environment,
indirect exposure might better suit investors with lower risk appetite
than that required for the power sector as it currently stands.
Industries such as equipment manufacturing and other service providers

should also benefit from the procurement and capital spend that the power
companies and the FGN will embark on. There is no going back for the
FGN at this point. The main unknown thrown up by the issues in
generation, transmission and distribution that we have highlighted is
the pace of progress. This in turn has a bearing on the optimisation of
returns within an acceptable timeframe for investors and banks operating in
a developing market.
We believe investors looking to get indirect exposure to power should look

to companies that have close-ended, piece-meal interactions with the
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power sector, providing products and services. The main areas we would
point to are in:
Power transmission infrastructure
Gas transportation infrastructure
Technology and engineering, including metering
Technical capacity and knowledge services
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PART IV Privatisation of NIPPs
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Chapter 17:
The NIPP Investor:
Second-Mover Advantage?
Private investors are to get another opportunity to acquire publicly-owned
power generation assets by way of the privatisation of National Integrated
Power Project (NIPP) GenCos. The NIPP programme is a separate and
distinct enterprise from the PHCN companies and privatisation process.
The Niger Delta Power Holding Company (NDPHC) was incorporated in

2005. It was set up to wholly own, manage and operate 10 new GenCos
(with the necessary transmission lines connecting to the national grid) to be
built under the NIPP programme using private sector best practices. The
programme was instigated to ensure that the FGN did not stall on adding
generation capacity at a time when the rest of the FGN-controlled sector
(PHCN) was focused on readying to be privatised.
Figure 44: Location of NIPP Assets Being Privatised
Olorunsogo
Omotosho
Geregu
Benin
Egbema
Omoku
Ogorode
Alaoji
Gbarain Calabar
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The Status Quo

The NIPPs privatisation is at an advanced stage. On 13 March 2014, 19
Preferred and Reserved Bidders were shortlisted by the BPE. Not entirely
unexpected for such processes, there has been some drama which has
temporarily scuppered the privatisation of three of the NIPPs Alaoji
Generation Company Limited, Gbarain Generation Company Limited and
Omoku Generation Company Limited.
On 17 March, the Federal High Court issued an interim order which

enjoined the BPE from proceeding with the privatisation of Alaoji, Omoku
and Gbarain GenCos. Ethiope Energy Ltd (EE), one of the pre-qualified
bidders for these three assets, challenged its disqualification as a bidder for
failing some aspects of the due diligence process and requirement. It
accused the BPE of bias, prejudice, conflict of interests and manipulation of
the technical bid evaluation due diligence process.
EEs Statement of Claim against the BPE et al., it accused the Chairman of
the Due Diligence Committee, Mr Atedo Peterside, of having immense
influence on the BPE. It asserted that Mr Peterside should have excluded
himself from the Technical Bid evaluation process as it related to EE
because he had a bias against its Chairman, Chief Johnson Arumeni. EE
said Mr Peterside had been having a running legal battle with Chief
Arumeni in the courts of their home state, Rivers State, and that Mr
Peterside was hostile and felt animosity towards Chief Arumeni.
At the end of March, the parties to the case informed the court that they
were in discussions to reach an out-of-court settlement. However on 30
April Counsel for EE informed the Court that the parties had not been able
to reach an amicable settlement. This was confirmed by Counsel for the
Defendants. Meanwhile the second Defendant, NDPHC, has filed an
appeal at the Federal Court of Appeal seeking to have the Interim Order set
aside so that the privatisation of the three NIPPs can proceed.
At a hearing at the beginning of July, the sitting judge adjourned the case
until October 7 for ruling.
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Table 37: Preferred and Reserved Bidders for 7 of 10 NIPPs*
Preferred Bidder Reserved Bidder
Bid Bid
NIPP Asset Organisation (US$ mn) Organisation (US$ mn)
Benin GenCo EMA Consortium 580.0 Index Consortium 575.0

Nebula Power Generation
Calabar GenCo EMA Consortium 625.0 Consortium 623.8
Egbema GenCo Dozzy Integrated Power Ltd 415.1 AITEO Consortium 392.0
Geregu GenCo Seoul Electric Power Ltd 690.2 Yellow Stone Electric Ltd 613.1
Ogorode GenCo Daniel Power Consortium 531.8 ESOP Power Ltd 510.0
Olorunsogo GenCo ENL Consortium 751.2 Index Consortium 730.0
Omotosho GenCo Omotosho Electric Power 660.0 ENL Consortium 645.2

OPTIMAL SALE VALUE 4,253.3 LEAST SALE VALUE 4,089.1
Source: BPE, CSL

* Privatisation of Alaoji, Omoku and Gbarain GenCos temporarily suspended pending ruling on Ethiope Energy Ltd's High Court case against
the BPE et al. for EE's disqualification as a bidder for these assets.
Ogorode Generation Company Ltd owns the Sapele II Power Plant
The Bidding and Selection Processes

This is being handled along the lines of those done for the PHCN
companies privatisation. There are three key stages:
Stage 1: Expression of Interest (EOI)
The key requirements here were that prospective bidders be existing local
or international power companies or investors with power O&M operators
as long term technical partners. Other stipulations included that the EOI
must state the prospective bidders number of years of experience in power
generation and distribution. The BPE also required evidence of such
ownership/activities, especially in developing countries. Other submissions
included clear evidence of the bidders having sufficient resources to
finance the acquisition.
Pre-qualified bidders were required to pay a US$20,000 fee for each NIPP
asset/GenCo of interest and sign a confidentiality agreement. They then
received the relevant Information Memoranda and Request for Proposals
(RFPs).
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Stage 2: Bid Proposal Submission
This involved a two-envelope system. Bidders were to submit one

containing their Technical Bid and one containing their
Commercial/Financial Bid, in accordance to requirements set out in the
RFP.
On submission of their Technical and Financial Bids, the bidders were

expected to submit a security deposit of a US$4 million on-demand
payment bond.
Stage 3: Two-Step Bid Evaluation
The BPE conducted a full technical evaluation and scored each Technical
Bid on criteria set out in the RFP. Those that passed the threshold moved
onto the next stage and their Financial Bids were then evaluated. The most
attractive financial proposal was declared the Preferred Bidder and the next
attractive proposal declared the Reserved Bidder.
Once the Preferred and Reserved Bidders were announced, the BPE and
the Preferred Bidder immediately began negotiations to finalise the
privatisation of the NIPP GenCo.
Within 15 business days of being notified of selection as the Preferred

Bidder and the Reserved Bidder, both bidders were required to lodge a
bank guarantee equal to 15% of the amount bid by the party. The bank
guarantee can be reimbursed if the bidder does not:
a) agree to the terms of the final drafts of the Share Sale Agreement
or Shareholders' Agreement; or
b) on signing the SSA and SA, pay the initial deposit, which is 25% of
the bid price for NIPPs that have reached full commissioning stage
on the date of signing or 10% of the bid price for NIPPs that are not
at full commissioning stage at the date of signing.
NIPPs Privatisation Package

The plants will be sold with Power Purchase Agreements with NBET in
place as well as fuel supply agreements. The PPA covers low levels of
dispatch for both capacity payments and obligations under take-or-pay
provisions under the Gas Supply and Aggregation Agreement. The PPA
capacity payment is designed to be sufficient to cover debt and return on
equity (ROE) in the event of problems in dispatching electricity not caused
by the power plant. The level is based on the 70/30 debt to equity ratio and
ROE assumptions used by NERC in MYTO II.
The new owners of the NIPP plants are able to enter into bilateral fuel
supply agreements for additional fuel. They can also negotiate PPAs with
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embedded networks not connected to the national grid, to which the plants
will be connected before handover.
Interim operations and maintenance agreements are currently effective.

The new owners can either take these over or can replace them.
Government Involvement in NIPPs Post-Privatisation

NDPHN is owned by the FGN, and state governments and Local
Government Authorities in their respective locations. After privatisation,
NDPHC will retain 20% stake in the NIPP GenCos. Notwithstanding we
would advise investors in the NIPP GenCos not to rely on NDPHC for
further injections of capital. In contrast to the position of the FGN in this
matter vis--vis its retained stakes in privatised PHCN companies, NDPHC
has been equivocal about injecting further capital/contributing to costs pro-
rata. Should NDPHC elect not to co-invest, it is prepared to have its holding
diluted. Similar to the FGN, NDPHC expects to have board representation
commensurate with its shareholding.
Figure 45: Ownership of NIPP Assets Pre and Post Privatisation
Federal Government 36 774

of Nigeria State Governments Local Governments
47% 35% 18%
Niger Delta Power Holding

Company
NIPP GENCOS
Niger Delta Power Private Investors in

Holding Company Specific NIPP GenCos
20% 80%
NIPP GENCOS
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Other Salient Terms
Foreign Exchange Risk and Debt Financing

The provisions for these two elements are similar to those for the PHCN
plants as MYTO II schedule applies. To summarise:
FX risk
Payments by NBET under PPAs are in local currency. As discussed
previously, MYTO II has factored in some foreign exchange components in
the tariff computations so investors have a degree of exchange risk
protection. The naira/US dollar exchange rate used in MYTO II is set at 1%
above the official Central Bank rate as during the review of MYTO I,
investors informed NERC that the CBN rates were not always accessible to
them. MYTO II model assumes a steady increase in the NGN/USD over the
years and also provides for bi-annual reviews. NERC has stated that US
dollar indexation will be covered as far as possible, although payments will
be made in local currency.
Debt finance
Shareholder loans made in the course of the bid for the NIPPs and
thereafter cannot be secured against the NIPP assets. The regulations
allow shareholder loans to be treated as equity provided that (i) the loans
are unsecured and enjoy no priority over the claims of all other creditors of
the company and (ii) there are no scheduled repayments falling due within
the first 3-years of private ownership.
Like the PHCN companies, the level of gearing for NIPP companies is
capped at 70%. Similarly, any debt raised for the NIPPs can only be
secured against cash flow (i.e. securitised) and not NIPP assets. This
restriction endures for the first three years of private ownership.
Credit Enhancements to the Transaction

Partial Risk Guarantee
Once TEM starts, monthly PPA payments by NBET are backed by a PRG.
NBET is expected to have an US$800 million capitalisation fund to support
its payment obligations. NBET has also secured a 3-month DisCo payment
security backed by a Letter of Credit.
PCOA
As with the case of PHCN GenCos and IPPs, there will be a Put-Call
Option Agreement in place. The parties to the NIPPs PCOAs will be the
NIPP investor, NDPHC and NBET. The PCOA allows NDPHC to
repurchase the investors shares in the NIPP GenCo Company thereby
protecting the investor and lenders in the event of buyer default. The buy-
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out price will be determined post-arbitration. The shares thus bought will be
transferred back to NDPHC.
Operation of the NIPP Put-Call Option is analogous to those of the PHCN

45
GenCos and the IPPs .
Table 38: Key Dates for NIPPs
June 2013 NIPP roadshow

July 2013 Deadline for submission of EOIs for NIPP Companies
August 2013 Pre-qualified bidders for NIPP Companies announced
27 September 2013 Deadline for NIPPs pre-qualified bidders to submit comments on Industry and
Transaction Agreements and the RFP.
[1 October 2013 Date initially planned for the declaration of TEM]
1 November 2013 Start of INTERIM RULES PERIOD
11 November 2013 Public opening of NIPP bid proposals
1 March 2014 Extended IRP expected to have ended and TEM declared.
TEM expected to start before end of June 2014
4 March 2014 42 technically qualified bidders for NIPP GenCos announced
7 March 2014 NIPP financial bid opening
May 2014 TEM is likely to be delayed further
[June 2014 Date initially planned for privatisation (hand over to new owners) of NIPPs]
Committed to the Process In for a Penny, In for a Pound

The handover of privatised NIPP assets to new owners was initially
scheduled for June 2014 by which time the plants were expected to have
been completed. However the timetable has been extended. The Preferred
and Reserved bidders were only announced on 21 March. In the PHCN
privatisation schedule, Industry Agreements between the BPE and
Preferred bidders were not signed until four months after the
announcement of Preferred and Reserved bidders. No doubt the NIPP
schedule is likely to gain some time advantage based on PHCN precedent
vis--vis construction and terms that both parties can agree on,
nonetheless there is still a six month period between the winning bidder
paying their deposit and paying the balance of the bid amount.
By the time the preferred bidders for the NIPPs were selected, and by the
due date of payment of their bank guarantees (14 April 2014), the PHCN
companies had been privatised and were operating under the Interim Rule
Order. In Chapter 10: we explained that the Interim Rule Period was
instigated as a stop-gap before TEM was declared to give time to resolve
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Page 41.
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significant issues concerning the business operations and the electricity

market at large that emerged post handover of assets to investors.
The PHCN privatisation process was not going as planned. The problems
discovered, hence the need to delay TEM, would no doubt be of particular
concern to the NIPP investors. The second-mover advantage that would
have been anticipated at the start the NIPP assets are newer, there is
precedent in the process, TEM would have been well-underway.... now
seem illusionary because the investors are already fully-committed to the
process. Thus they must travel in faith that NERC, BPE and the FGN will
resolve all issues before too long.
The NIPP bidders are in a difficult position. An apt analogy would be a

journey on an amusement park thrill/horror train ride. The train is hurtling
towards a brick wall and at the moment prospective NIPP investors are
travelling in the hope that the wall will be removed in time. They are not
welded into their seats so while they can abort mid-journey and jump off the
train, it will not be without incurring significant injury. The damage would be
financial as the financial commitment to the process in terms of fees and
man-hours is not inconsiderable. Furthermore, the damage might be by
way of opportunity loss should the wall be removed before the train hits but
after the bidder has jumped off the train.
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PART V - Conclusions
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Chapter 18:
Outlook for the Nigerian Power Sector
The reform of Nigerias financial and telecoms sectors have been radical.
The feted reforms of the oil and gas sector, to be heralded by the long-
awaited passing of the Petroleum Industry Bill, are likely to be even more
so in its impact. However it is evident that Nigeria has not seen a more
comprehensive reform to an industry since independence in 1960 than has
been done to the power sector.
As we mentioned in the opening chapter, the FGN deserves no prizes, to

say the least, for being in the position it was when it embarked on the
reforms. Privatising a power sector before it is anywhere near profitable is a
tacit admission of a governments failing in its social contract with its
citizens. However since the President of Nigeria, Goodluck Jonathan,
established the Presidential Action Committee on Power (PACP) in 2010,
the reform programme has picked up pace and has been enshrined in the
Roadmap for Power Sector Reform. The concerted efforts of the electricity
regulator (NERC), the Bureau for Public Enterprises (BPE), the Ministry of
Finance and others culminated in the privatisation of the GenCo and DisCo
companies that were part of the moribund state-owned behemoth
NEPA/PHCN.
Venerunt, Viderunt, Noluerunt Vincere.46

After over five decades of stops and starts, of numerous reform agenda,
the FGN can be commended for getting the reforms and structures to the
current point of having sold controlling interests the Successor Companies
to private investors. The new institutions that are to feature in the system
have been established and staffed and to a greater or lesser extent have
begun to implement their mandates. We believe a number of features of the
new privatised regime ought to be singled out including:
The Regulatory Framework

The regulations, rules, operating codes and plans are detailed and
comprehensive. They have also been drafted in such a way that allows
them to be amended to meet market realities without having to go through
superfluous levels of bureaucracy. Online access to the governing
instruments and documents of the sector has been made possible.
However the information is yet to be accessible from a centralised point
which makes referencing time-consuming and inefficient. Improvements are
ongoing thus we believe that in time this will be put in order.
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They came, they saw, they refused to conquer.
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The Regulator NERC

The working relationship between NERC, the DisCos and GenCos has
been collaborative and consultative. NERC has shown itself willing to take
advantage of its latitude to change, adapt and introduce regulations to fit
the realities of the market where required. Even in the wake of the major
problems that have emerged post handover of the Successor Companies,
NERC has been viewed favourably. It is considered to understand the
requirements of the stakeholders in the market and what is necessary
to make the NESI work. It has also flexed its muscles as the regulator
of the industry to take to task entrenched interests of the old guard at
PHCN.
NERC has demonstrated commitment to carrying out its duties as a

regulator independently. Its withdrawal from the Supervisory Board of TCN
is good indication of this, in our view. Exclusion from TCNs board ensures
arms-length, dispassionate, yet pragmatic oversight. Thus it can focus on
the goal to have an efficient, effective, profitable market to the benefit of all
stakeholders (customers, GenCos, DisCos, TCN, NBET) while navigating a
political system with challenging characteristics like that in Nigeria.
A hallmark of the legal and regulatory framework of successful deregulated

industries is the existence of a single central regulatory authority furnished
with comprehensive powers. Private investors and consumers rely on the
certainty provided by a clearly-identified single arbiter. The existence of a
plurality of regulatory institutions creates uncertainty and confusion for the
private investor base and we believe is likely to put off private investment,
especially in an industry with as chequered a history as Nigerias electricity
sector. Hence the establishment of NERC early on in 2005 was viewed as
a key win for the FGN by investors.
Intellectual Capital at Central Institutions

The intellectual and professional capital of key institutions like the regulator
NERC, NBET and TCN has been bolstered by recruiting into leadership
positions those most skilled from within the domestic power industry and
also from outside the domestic market. The FGN should be given credit for
this. Irrespective of potential, it is only with the right leadership and
management that an organisations goals can be realised.
Execution Risk Amplified by Inertia and Interference

Getting the right leadership, management, regulations and regulatory
structures is one thing; execution of plans is a different matter altogether.
Poor execution can relegate what is a strategic competitive advantage to
mere window-dressing.
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The industry is reliant on the FGN to follow through on transmission and

gas infrastructure build-out, wheeling of power and settlement and
payments functions. For better or for worse, some vestiges of the necrotic
NEPA regime still exists and its organisational inertia and ineffectiveness
cannot be changed overnight, even with new management. However, much
has been done to cut out the dead wood and the skill base is being
improved through investment in staff training.
Political interference in the running of commercial enterprises has been an

unfortunate hallmark of the Nigerian market, more so in the case of the
privatisation of a large country-wide utility that has had billions of US dollars
of FGN budget appropriation at its disposal. We believe that the proper
operation of the central state-controlled organisations of the NESI is
hobbled by the palpable degree of political interference that still exists. TCN
is an ideal case in point.
The issues surrounding the Market Operator and handing over control to
Manitoba Hydro International are frustrating to progress. We fail to
understand why TCNs closing books and accounts are so opaque as to be
virtually impenetrable to audit. MHI needs to be given its full requisite
powers to fix TCN and the transmission infrastructure. Any concerns over
MHI having control over TCNs finances should have been resolved before
the decision to go down the outsourced management route was taken in
the first place. After all, control of finances is inherent in the outsourced
management model.
The place for ongoing monitoring of MHIs progress is via the TCNs
Supervisory Board, which has been constituted with a sufficient number of
members to ensure very thorough supervision and oversight.
Similarly we are yet to find persuasive arguments from the FGN about why
NBET is yet to be properly funded. The FGN planned for the US$800
million to fund its operations; the FGN raised over US$3.5 billion from the
sale of the Successor Companies...
The Political Cycle and The Voter

Unfortunately we believe that Nigerias political cycle has amplified the
perception of the level of execution risk in the power sector. Presidential
elections are scheduled for February 2015 and concerns over how the
public would react to the drastic changes needed in the power sector,
especially increasing tariffs, is making matters particularly difficult for
NERC, NBET etc.
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Surmountable Issues but Action Required Anon

The issues and problems that have emerged are not without precedents in
other markets that have gone through similar processes. They are not fatal
to Nigerias privatised electric power industry, for now. However the window
for taking decisive action to rectify and resolve the problems will not stay
open indefinitely. There will soon be a point when the extent of obfuscation,
shifting of goalposts, variance from plans and overall uncertainty results in
the conclusion that the execution and/or systemic risks are too high to be
offset by potential returns.
TCN and Transmission Infrastructure

The system stands and falls with the transmission infrastructure. The
current network, were it in optimal condition, is capable of
transmitting 6,000 MW of power, practically twice as much electricity
currently being supplied. Getting to 6,000 MW wheeling capability is the
low-hanging fruit for TCN, the easy win. This will make a noticeable
difference to the end user. Experiencing such an improvement in electricity
supply will give confidence in the system and make further tariff increases,
which are invariably necessary, much easier for the end customer to
stomach.
MHI needs to be allowed to do what it is contracted to do to the full extent

without a hobbling degree of political interference. If not, and transmission
targets are not met, we believe it would be difficult for NERC or TCNs own
supervisory board to take MHI to task for any future non-performance.
MYTO Tariffs
It is an unequivocal fact that MYTO tariffs were not set at the right
level to begin with: they were set too low. Even after the adjustments
made in the Minor Review which took effect on 1 Jun 2014, they are still too
low.
The data about the network provided to NERC, which was used in the
model was incorrect. In our view it would be an exercise in futility and will
detract from finding and implementing a solution to the morass to try to lay
blame at this stage. Doing so causes delays and is unproductive. Where
the market stands now, essentially in limbo, it is not important whether data
inaccuracies were due to operational laxity, administrative errors or that
redundancies in the system precluded the execution of a comprehensive
audit. That is not to say that transparency and accountability should not be
a high priority; far from it. Even though the system is being overhauled, it is
important to note where the infrastructure and manpower weaknesses in
the system have been and to address them appropriately to prevent a
recurrence in the brave new world of the privatised NESI.
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Tariffs Must Increase Ground Zero Needs to be Reset

The inaccurate underlying technical assumptions have been compounded
by the generation capacity being off-target. Current generation capacity is
(3,400 MW versus the 9,000 MW MYTO projected):
1. Tariffs must increase so that they are cost-reflective and meet

the Revenue Requirement of the industry. Otherwise the NESI is
not sustainable and will not be investable.
2. The FGN is likely very sensitive to adverse reception by the

electorate to increasing tariffs. In view of this it might be reluctant to
raise tariffs to the cost-reflective level the industry requires. The
solution, therefore, would be for the FGN to accept that it will
need to make up the difference by funding deeper tariff
subsidies for longer than the two to three years it initially
anticipated.
Lending banks will need to see that the businesses are viable. They are not
viable if the tariffs do not cover the Revenue Requirement. As in other
privatisations where tariff controls have existed, banks and lending
institutions are pragmatic and they would by and large be willing to proceed
on the guarantee from the authorities that within a defined timeframe, tariffs
(ex-subsidies) will be cost-reflective.
Bankability and Raising Expansion Capex

The essential industry agreements need to be bankable or else investors
will not be able to raise the capital required from financing institutions. By
its own admission, the FGN does not have the financial leverage to fund
the industry. The Nigerian power sector will need to raise US$13-15 billion
for capital expenditure over the next five years and another US$7.5-10
billion is required for the supporting gas infrastructure.
The Nigerian banking sector on its own or in conjunction with the FGN will
not be able to fund the power sectors expansion plans. Furthermore, even
if the local banking sector could fund it, the financial regulatory authority
and the banks internal risk management would require bankable
documents to extend financing beyond what has been done so far. Current
plans will not be realised without external (non-local) financing and the
NESI will not be able to tap the international finance market without
bankable documents.
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Transitional Electricity Market

The current no-mans land of the Interim Rules Period needs to be wound
up. TEM is too long overdue. The uncertainty that currently exists will put
off further investment in the sector, in our view. There will be teething
issues when TEM starts. We understand that the authorities could be using
the opportunity of the post-privatisation kerfuffle and morass to anticipate
some of TEM issues and resolve them ahead of its. Notwithstanding, the
market must be in TEM in order to know the full measure of the issues of
TEM.
The full operation of NBET, credit enhancements such as the PRG and the
other laudable aspects of the reformed system do not come into force until
TEM. So at the moment there is little change from the old NEPA/PHCN
regime other than the fact that private investors have now committed to the
sector.
The FGN cannot hide behind the fact that control now lies in private hands
so the onus of performance is on the new owners. For good reasons, the
FGN still regulates tariffs. In addition, the state of the industry necessitated
that it retain control and responsibility for transmission infrastructure. Thus
investors have their hands tied vis--vis the commercial flexes they can
wield to compensate for unexpected shortfalls, for example. For the time
being the FGN is somewhat cushioned from public backlash over the lack
of power. As far as the public is concerned, the industry has been
privatised so the blame lies with the new owners. However, the laudable
increase in transparency and information flow in the sector means that
there is only so long this perception will persist before the spotlight shifts to
also encompass the FGN once more.
A Phased Transition to TEM?

One of the factors holding up TEM is that some DisCos clearly require
more time than others to get the houses they were sold in sufficient order
for the starting line. A solution to prevent further delay to TEM could be to
institute a 2-phased entry to the new regime. The bulk of DisCos and
GenCos can begin under the full operation of the TEM regime, while the
second group will be introduced within a strictly-defined time period. We
believe that this could necessitate the FGN providing specific financial
support for the second group during their transition and qualifications of
some of the bilateral obligations of TEM as they apply to the second group.
Notwithstanding, the overall benefit to the industry would surpass the
additional cost in our view. It would be more efficacious to pull the second
group over the starting line than to wait to push the entire group over the
line.
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Market Idiosyncrasies and the Future of the NESI

The FGN must make the new NESI regime work. It has gone too far down
the process for it not to. It will have to accept that the costs of the process
to the national account will be higher than anticipated but it will have to
chalk that up to the price it has to pay for privatising the industry at this
stage of development. The future benefits to all stakeholders far outweigh
any short-term discomfort the FGN might have. Crucially though, we do not
believe the NESI will flourish unless it is left to work without undue political
interference and operation of vested interests.
Frontier Market with Potential for Sizeable Returns, But...

From investors perspective the high risk profile is inherent in Nigeria
having the characteristics of a Frontier Market. Nigeria itself has particular
idiosyncrasies that may warrant an additional risk premium. It is also
inherent in those very idiosyncrasies that when it comes to an initiative so
critical to the future prosperity of the nation, and that of key individuals
invested in it, the Nigerian system has a way of muddling through, of
making it all come right in the wash, as the saying goes.
The road will be bumpy but the potential returns on a mass market
product/service in a country the size of Nigeria could more likely than
not outweigh the higher risks. We could point to Nigerias liberalised
mobile telecommunications sector as demonstrating this dialectic;
however we do not imply that the trajectory will necessarily be the
same for power.
As far as affordability of the product/service (the tariff level) for the mass
market is concerned, the experience of the mobile operators in the
privatised telecommunications market just so happens to serve as a good
example as well. The National Bureau of Statistics (NBS) reported monthly
household expenditure on mobile pre-paid cards was 20,874 (US$130)
per household. Compared with this, many households, in our experience,
pay 4,000-6,000 (US$25-38) per month in electricity bills for less than 12
hours of electricity per day. In our view this is probative empirical evidence
that on the specific issue of affordability, the end-user is willing and able to
pay a higher tariff provided the service is being supplied.
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Winners and Losers

In the long run, the different starting points and addressable markets of the
DisCos means that some will struggle to meet their payments more than
others, especially if TEM continues to be delayed. The GenCos are in a
less perilous position due to the fact that risks are skewed in their favour.
Moreover the links to market for generation are simpler (gas power
generator transmission network); they do not have to contend with
numerous connections to the end customer. The FGN is also under
pressure to perform, not least due to the severe financial penalties it will
incur should a PRG become engaged.
Cautionary Tale
The key take-away is that if tariffs do not rise to a level that covers
costs and offers a reasonable return to investors (the Revenue
Requirement), the Nigerian electricity supply industry will not be a
viable long term investment opportunity. We understand political
sensitivities about the effect of tariff increases on the public however we
believe this threat to be overstated. We would strongly encourage NERC
and the FGN against resisting raising tariffs and would cite the California
Electricity Crisis of 2000 and 2001 as a cautionary tale.
In the years leading up to the denouement, the US state of California like

Nigeria, suffered from blackouts brought on by a shortage of electricity. The
reasons for the shortage differ in both cases but the economic principles at
work are the same. The California state government had a cap on retail
prices but the wholesale price was set by the market. Thus when a severe
electricity supply-demand gap opened, there followed a drastic rise in the
wholesale price of electricity i.e. the costs of the GenCos and DisCos doing
business. As end-user tariffs were capped, the industrys revenue margins
were squeezed. This eventually led to more blackouts, the eventual
bankruptcy of the states largest electricity company and the near
bankruptcy of several more. The economic fallout of the crisis had a
considerable negative impact on the political standing of the then state
governor Gray Davis and was material to his eventual recall. In October
2003 he became the second governor to be recalled in American history.
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Investment Conclusion
Irrespective of the rhetoric, given what has transpired over the last nine
months and noting more recent public pronouncements by governing
bodies, we would advise caution for the time being. For us to have a more
bullish view on investing in the Nigerian Electricity Supply Industry we
would need:
1. To see the MYTO model take into account the reality of the
Successor DisCos and GenCos; we believe this will invariably
mean that the Revenue Requirement will increase.
2. Higher Revenue Requirement would mean higher tariffs and we

would need to see a clear schedule showing commitment to get the
tariffs to the required level and/or FGN commitment to subsidies to
make up the gap in the interim.
3. TEM needs to start and we need to see NBET and TCN

demonstrating they are capable of operating as they are set out to.
We are pragmatic and appreciate that there will be minor teething
problems. This to be expected under the circumstances.
In the long run, we believe that while the Nigerian electricity supply market
could become an open-traded market, as planned, the market could likely
end up with a two-tier structure. One would have customers relying on
power from the national grid and the other with customers in an
IPP/embedded generator framework. What the former lacks in reliability
would be off-set by lower tariffs than the IPP/embedded framework. The
IPP/embedded framework will exhibit high reliability of service in exchange
for higher tariffs than the grid-connected system.
47
Mille viae ducunt homines per saecula Romam
There are numerous paths to improving the generation and delivery of

power in the Nigerian Electricity Supply Industry. It matters little to the end
customer, be they households or industry, whether their electricity comes
from the national grid or from embedded generator IPPs. The system has
to deliver what it has been set up to deliver. This will involve all
stakeholders in and connected to the industry delivering on their declared
obligations in time and within reasonable financial parameters. As the
driver and overseer of the new market, it behoves the FGN to ensure
that the NESI works in practice as the paper says it says it should and
would. At this stage the onus of management of the execution risk of
the system lies with the FGN.
47
A thousand roads lead men forever to Rome in Liber Parabolarum,591 (1175), by Alain de
Lille.
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APPENDICES
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THE PRIVATISTED PHCN GENCOS
Est. Avg.
Installed Available Load
Location Capacity Capacity Demand Bid Year of
Company Name (State) (MW) (MW) (MW) Winning Bidders (US$ mn) Stake Acquired Construction Other Details
5,832 1,992 10,700 1,649.9
1.. Afam Power Plc Rivers 776 75 On-Grid Taleveras Energy Group 260.1 60% 1963 + Afam GenCo and Kaduna Disco were not privatised along with
[Gas] [Alstom Nig. Ltd. + Rivers the other PHCN companies because no bidders met the technical
State government + criteria. In order not to stall the sales, the Bureau of Public
Taleveras Petroleum Enterprise (BPE) initiated a Plan B where the pre-qualifying bidders
Trading] were asked to resubmit their bids. The Taleveras Consortium
emerged as the winner for Afam (and Northwest Power the winner
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of Kaduna).
+ Transaction due to close before end of Q1 2014.
+ Alstom Nig. supplies, operates and maintains power turbines. It is
a subsidiary of France's Alstom Group which focuses on power
generation and transportation.
2.. Egbin Power Plc Lagos 1,320 880 On-Grid NEDC/KEPCO Consortium 407.3 70% 1986 + Chairman: Kola Adesina.
[Gas] [Korean Electric Power + Tope Sonubi and Tonye Cole via Sahara Energy Group, a
Corp. + Sahara Energy downstream services company.
Resources] + Egbin Power was not acquired in a bidding process. Technical
Nigerian Power Sector
partner NEDC/KEPCO originally acquired the Egbin Plant under

the 'oil-for-infrastructure' initiative instituted by then President
Obasanjo in 2000. In 2007, President Yar'Adua cancelled several
of those 'oil-for-infrastructure' deals Obasanjo struck with Asian Oil
companies but no part of their invested funds (including capital
costs) was returned to the investors.
+ KEPCO was offered a further 19% of the shares in 2013 to bring
their holding to 70%. The share purchase agreement stipulated
payment for 51% stake at the 2007 valuation of US$549.1m and
the additional 19% at the current US$670m valuation.
3.. Geregu Power Plc Kogi 414 83 On-Grid Amperion Power 132.0 51% 2007 + Chairman: Femi Otedola (via Forte Oil Plc's 57% stake. Otedola
[Gas] Distribution Co. Ltd = FO's Chairman).
[Forte Oil Nig. Ltd. + BSG + Technical Partners: BSG Resources Ltd (38%) and Shanghai
Resources + Shanghai Municipal Electric Power Company (5%).
Municipal Electric Power
Company]
4.. Kainji Hydro Niger 760 283 On-Grid Mainstream Energy 237.9 Not an outright sale but a 15- 1968, 1978 + Vice-Chairman: Ismaila Isa Funtua,
Electric Plc Solutions Ltd. yr concession, the fee + Col. Sani Bello (rtd.), former military administrator of Kano State.
Appendix 1: Winning Bidders of
[Col. Sani Bello + structure being: + Okhai Akhigbe, former Chief of General Staff.
RusHydro] 1) A commencement fee (the + Tunde Ogbeha, former Senator.
bid price); + Russia's RusHydro = technical partner.
2) Y1-Y5 - a royalty payment + Financed by Guaranty Trust Bank and African Finance
of 5% of plant revenues; Corporation.
3) Y6-Y15 - a fixed annual fee
of US$50,760,665.18.
Successor (PHCN) DisCos and GenCos
5.. Sapele Power Plc Delta 1,020 240 On-Grid CMEC/EURAFIC Energy 201.0 100% 1978, 1983 + Tony Onoh heads EURAFRIC Energy, an oil and gas firm
[Gas] Consortium involved in exploration and production. It is part of G-Eurafric, a
[China Machinery & Nigerian group of companies involved in energy, petrochemicals,
Engineering Corp. + aviation, property and commodity trading.
EURAFIC Energy Nig. Ld., + CMEC is an integrated engineering firm engaged in project
British Power Intl.+ First contracting, international trade and related services. Its main areas
Bank] of operation are power generation and distribution, transportation,
mining and resource exploration and housing development.
6.. Shiroro Hydro Niger 600 111 On-Grid North South Power 111.7 Not an outright sale but a 15- 1989 + Vice-Chairman: Olubunmi Peters.
Electric Plc [Niger State government + yr concession, the fee + UBA arranged debt financing.
XS Energy Ltd. + BP structure being: + China Three Gorges Corporation also oversees the Zungeru
Investment Ltd. + Urban 1) A commencement fee (the 700MW hydroelectric power project in Niger State.
Shelter Ltd. + Road Nigeria bid price);
Plc + China International 2) Y1-Y5 - a royalty payment
Water Electric + China of 5% of plant revenues;
Three Gorges Corporation] 3) Y6-Y15 - a fixed annual fee
of US$23,602,484.47.
(PRA) and regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) in the
7.. Ughelli Power Plc Delta 942 320 On-Grid Transcorp Consortium 300.0 100% 1966 + Chairman: Tony Elumelu (via Heir Holdings Ltd. HH committed
[Gas] [Transnational Corporation USD225mn through debt financing underwritten by African Finance
of Nigeria + Woodrock Corp., UBA and FCMB).
Symbian + Medea + PSL + + Woodrock is an American multi-services firm.
Thomassen]
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Infrastructure
THE PRIVATISED PHCN DISCOS
Population
Location Coverage Density Distribution Bid 5-yr Stake
Company Name (State) Areas (per km2) (GWh) Winning Bidders (US$ mn) Capex Acquired Other Details
1,457.5
1.. Abuja Electricity Distribution Co. FCT, Niger, Garki, Lafia, 83 1,802 KANN Consortium Utility 164.0 183.0 60% + Chairman: Shehu Malami (former Chair of Costain and PZ
Kogi , and Lokoja, Mina Co. Ltd. Cussons)
Nassarawa [Copperbelt Energy + Managing Director: Neil Croucher of Zambia-based CEC. CEC
Corporation (CEC) + generates, transmits and distributes electricity to the mining sector in
Xerxes Global Investments] Zambia, DR Congo and South Africa.
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+ 50/50 JV with Nigeria's XerXes Global Investments.
+ Neil Croucher of Zambia based CEC has been appointed
Managing Director of KANN.
+ Standard Bank of South Africa (SBSA) and Stanbic ITC provided
debt financing and financial advisory services.
2.. Benin Electricity Distribution Co. Edo, Delta, Ado-Ekiti, 229 1,855 Vigeo Power Consortium 129.0 250.0 60% + Chairman: Victor Gbolade Osibodu
Ondo, and Akpakpava, Ltd. + CEO: Funke Osibodu. Former Managing Director of Union Bank;
part of Ekiti Aku [Vigeo Holdings + Tata wife of Victor Osibodu.

Power Delhi Distribution Ltd + Vigeo Holdings is a diversified industrial company, with one of its
+ Calcutta Electric Supply subsidiaries being Global Utilities Management Company. GUMC
Corp. + African Finance has provided metering systems to the Benin Electricity Distribution
Corporation] Co. for the last few years, under the National Prepayment Metering
Programme.
+ Stanbic IBTC provided debt financing and assisted in raising
equity for the acquisition.
3.. Eko Electricity Distribution Co. Lagos Festac, Ijora, 2,483 1,440 West Power & Gas 135.0 250.0 60% + Chairman, Charles Momoh. He is also Managing Director of
Islands, Consortium Atlantic and oil industry services company.
Badagry [Alpha Consortium Ltd + + Tunji Olowolafe is the Chairman and Managing Director of Deux
Atlantic Meridean Ltd. + Project Ltd a civil engineering, construction and consultancy
Africa Infrastructure company. Deux is involved in several PPP infrastructure projects.
Investment Managers] + Ernest Orji chairs Alpha, a utilities outsourcing, metering and
project management firm.
+ Germany's Siemens Ltd is the technical partner.
+ AIIM is a private equity infrastructure investment firm co-owned by
Macquarie and Old Mutual Investment Grp.
4.. Enugu Electricity Distribution Co. Enugu, Abia, Aba, 566 1,920 Interstate Electric Ltd 126.0 136.0 60% + Chairman: Emeka Offor who is also chair of Chrome Energy Ltd a
Imo , Abakaliki, Consortium company engaged in oil and gas services, telecommunications and
Anambra Awka, [Chrome Consortium logistics.
and Ebonyi Abakpa Energy Ltd. + Powerhouse + Technical partners are Power House International and Metropolitan
International Ltd. + Electricity Authority of Thailand.
Metropolitan Electricity
Authority of Thailand]
5.. Ibadan Electricity Distribution Co. Oyo, Ogun, Abeokuta, 172 1,989 Integrated Energy 169.0 219.0 60% + 17.46% ATC&C loss reduction
Osun, Kwara Dugbe, ijebu- Distribution & Marketing + Former President Abdulsalam Abubakar chairs IEDMC an oil and
and part of Ode Company gas company.
Ekiti + Vice Chairman: Tunde Ayeni. On the boards of Skye Bank and
Aso Savings & Loans Plc.
+ Manila Electric Company is The Philippines' leading electricity
distribution company, is the technical partner.
6.. Ikeja Electricity Distribution Co. Lagos Alimosho, 2,483 2,077 NEDC/KEPCO Consortium 131.0 293.0 60% + Chairman: Kola Adesina.
Ikeja, [New Electricity Distribution + Tope Sonubi and Tonye Cole via Sahara Oil & Gas, a
Ikorodu, Company + Korean Electric downstream services company.
Power Corp. + Sahara
Energy Resources]
Infrastructure
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THE PRIVATISED PHCN DISCOS (continued)
Population
Location Coverage Density Distribution Bid 5-yr Stake
Company Name (State) Areas (per km2) (GWh) Winning Bidders (US$ mn) Capex Acquired Other Details
1,457.5
7.. Jos Electricity Distribution Co. Plateau, Bauchi, 107 714 Aura Energy Ltd. 82.0 113.0 60% + Mohammed Noma chairs Aura. He is the former speaker of the
Bauchi, Gombe, Jos, Consortium House of Assembly in Bauchi State in the First Republic.
Benue and Makurdi [Aura Energy Ltd. + Aydem + Aydem Elektrik is a well-established electricity distributor in Turkey.
Gombe Elektrik Dagitim A.S.]
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8.. Kaduna Electricity Distribution Co. Kaduna, 113 1,233 Northwest Power Ltd. 201.0 149.0 60% + Kaduna Disco and Afam GenCo were not privatised along with the
Sokoto, other PHCN companies because no bidders met the technical
Kebbi and criteria. In order not to stall the sales, the Bureau of Public
Zamfara Enterprise (BPE) initiated a Plan B where the pre-qualifying bidders
were asked to resubmit their bids. Northwest Power emerged as the
winner for the Kaduna Disco with + 29.26% ATC&C loss reduction
(and Taleveras Group the winner of Afam).
+ Transaction due to close before end of Q1 2014.
+ Chairman of Northwest Power is Yusuf Hamisu Abubakar, a

Commissioner at the Nigerian Communications Commission (NCC),
board member at Niger Insurance Company. He is also the CEO/MD
of Sahelian Power Consortium, winning bidder of Kano Disco.
9.. Kano Electricity Distribution Co. Kano, Dala, Dutse, 291 788 Sahelian Power SPV Ltd. 137.0 151.0 60% + Chairman of Sahelian is Umaru Mutallab, promoter of IPL. He is a
Jigawa and Funtua, Kati Consortium banker who was once Chairman of First Bank.
Katsina [Incar Power Ltd. (IPL) + + CEO/Managing Director: Yusuf Hamisu Abubakar, a
Dantata Investments & Commissioner at the Nigerian Communications Commission (NCC),
Securities + Sahelian board member at Niger Insurance Company. Chairman of Northwest
Energy & Integrated Power is Yusuf Hamisu Abubakar, a Commissioner at the Nigerian
Services (SEIS) + Highland Communications Commission (NCC), board member at Niger
Electricity Ltd. (HEL) + Insurance Company. He is also the Chairman of Northwest Power
Kayseri Ve Civari Elektrik Consortium, winning bidder in the re-started Kaduna Disco sale (see
T.A.S. (KCETAS)] details under 'Kaduna Electricity Distribution Co.' in this table).
+ Aminu Dantata, promoter of Dantata Investment and Securities.
+ Kashim Bukar Shettima, promoter of HEL.
+ Technical partner is KCETAS, a Turkish electricity generation and
distribution company.
10.. Port Harcourt Electricity Distribution Co. Rivers, Borokiri, 283 1,164 4Power Consortium 124.2 127.0 60% + Chairman: Augustine Nwokocha. Commissioner for Energy for
Cross River, Calabar, [Taleveras Grp.. + Lilleker Rivers State.
Bayelsa and Diobu, Bros. Nig. Ltd. + Income + Governors of Rivers, Bayelsa, Cross River and Akwa Ibom
Akwa Ibom Electrix Ltd./CESC Ltd JV + States.
Skyview Power Under the privatisation programme, due to the States' ownership of
Technologies Ltd + Akwa the right of way in their territory and their prior investment in the
Ibom Investment & distribution and
Industrial Promotion rural electrification network, they are automatically entitled to 2% of
Council (AKIIPOC) + the power companies. Regulations also state that they can acquire a
Paradise Power Nig. Ltd. + maximum of 8% through the bidding consortia.
Bayelsa Electricity + Guaranty Trust Bank (GTB) provided debt financing.
Company + Calcutta
Electric Supply Corporation
Ltd. (CESC)]
11.. Yola Electricity Distribution Co. Yola, Damaturu, 56 265 Integrated Energy 59.3 65.0 60% + 18.58% ATC&C loss reduction
Adamawa, Jalingo, Distribution & Marketing + Former President Abdulsalam Abubakar chairs IEDMC an oil and
Borno, Maiduguri Company gas company.
Taraba and + Vice Chairman: Tunde Ayeni. On the boards of Skye Bank and
Yobe Aso Savings & Loans Plc.
+ Manila Electric Company is The Philippines' leading electricity
distribution company, is the technical partner.
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Infrastructure

LISTED INVESTORS IN WINNING CONSORTIA FOR SUCCESSOR COMPANIES
Successor Company Consortium/SPV Listed Investor* Ticker Exchange Comment

Abuja DisCo KANN Consortium Utility Co. Ltd. Copperbelt Energy Corp. CEC.ZM Lusaka Stock Exchange
[Copperbelt Energy Corporation (CEC) + Xerxes Global
Investments]
Afam GenCo Taleveras Energy Group Alstom (parent of Alstom ALO:EPA Euronext Paris
[Alstom Nig. Ltd. + Rivers State government + Taleveras Nig.)
Petroleum Trading]
Benin DisCo Vigeo Power Consortium Ltd. Tata Power via TPDDL 500400:BOM Bombay Stock Exchange Tata Power owns 51% of
[Vigeo Holdings + Tata Power Dehli Distribution Ltd + TATAPOWER:NSE National Stock Exchange of India TPDDL
Calcutta Electric Supply Corp. + African Finance
CESC CESC Bombay Stock Exchange
Corporation]
CESC:IN National Stock Exchange of India
Egbin GenCo NEDC/KEPCO Consortium Korean Electric Power Corp. 015760:KRX Korea Exchange
[Korean Electric Power Corp. + Sahara Energy KEP:NYSE New York Stock Exchange
Resources]
Eko DisCo West Power & Gas Consortium Old Mutual via OMIG in AIIM OML.L London Stock Exchange AIIM is co-owned by
[Alpha Consortium Ltd + Atlantic Meridean Ltd. + Africa OMLJ.J Johannesburg Stock Exchange Macquarie and Old
Infrastructure Investment Managers] Mutual Investment Group
Maquarie via AIIM MQG:ASX Australia Securities Exchange
Siemens SIE:GR Deutsche Brse Siemens is the technical
SIE:LON London Stock Exchange partner
SIE:VX Schweizer Brse
Enugu DisCo Interstate Electric Ltd Consortium
[Chrome Consortium Energy Ltd. + Powerhouse
International Ltd. + Metropolitan Electricity Authority of
Thailand]
Geregu GenCo Amperion Power Distribution Co. Ltd Forte Oil FO:NL Nigerian Stock Exchange
[Forte Oil Nig. Ltd. + BSG Resources + Shanghai
Municipal Electric Power Company]
Ibadan DisCo Integrated Energy Distribution & Marketing Company Manila Electric (MERALCO) MER:PM The Philippine Stock Exchange MERALCO is the
technical partner
Ikeja DisCo NEDC/KEPCO Consortium Korean Electric Power Corp. 015760:KRX Korea Exchange
[New Electricity Distribution Company + Korean Electric KEP:NYSE New York Stock Exchange
Power Corp. + Sahara Energy Resources]
Jos DisCo Aura Energy Ltd. Consortium
[Aura Energy Ltd. + Aydem Elektrik Dagitim A.S.]
Kaduna DisCo Northwest Power Ltd.
Kano DisCo Sahelian Power SPV Ltd. Consortium

[Incar Power Ltd. (IPL) + Dantata Investments &
Securities + Sahelian Energy & Intergrated Services
(SEIS) + Highland Electricity Ltd. (HEL) + Kayseri Ve
Civari Elektrik T.A.S. (KCETAS)]
Port Harcourt DisCo 4Power Consortium CESC CESC Bombay Stock Exchange
[Taleveras Grp. + Lilleker Bros. Nig. Ltd. + Income CESC:IN National Stock Exchange of India
Electrix Ltd./CESC Ltd JV + Skyview Power
Technologies Ltd + Akwa Ibom Investment & Industrial
Promotion Council (AKIIPOC) + Paradise Power Nig. Ltd.
+ Bayelsa Electricity Company + Calcutta Electric Supply
Corporation Ltd. (CESC)]
Sapele GenCo CMEC/EURAFIC Energy Consortium CMEC 1829:HKG Hong Kong Stock Exchange
[China Machinery & Engineering Corp. + EURAFIC FBN Holdings (First Bank) FBNH:NL Nigerian Stock Exchange
Energy Nig. Ld., British Power Intl.+ First Bank].
Shiroro Hydro GenCo North South Power

[Niger State government + XS Energy Ltd. + BP
Investment Ltd. + Urban Shelter Ltd. + Road Nigeria Plc +
China International Water Electric + China Three Gorges
Corporation]
Ughelli GenCo Transcorp Consortium [Transnational Corporation of Transcorp TRANSCORP:NL Nigerian Stock Exchange
Nigeria + Woodrock Energy + Symbion Power + Medea
Development + PSL + Thomassen Holding]
Kainji Hydro GenCo Mainstream Energy Solutions Ltd. RusHydro HYDR:RM Mosco Exchange (MICEX)
[Col.Sani Bello + RusHydro] HYDR:LON London Stock Exchange
Yola DisCo Integrated Energy Distribution & Marketing Company

* NOTE: This table is meant to be representative. We have aimed to be as comprehensive as possible. However detailed information on the nature and structure of stakeholdings within the various
consortia is limited and not always readily availabe. Thus it is not always possible to identify all the direct interests of listed entities.
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Appendix 2: Key Regulatory Institutions
Nigerian Power Sector Key Industry Participants
Established in 2008 for the strategic planning and co-

Energy Commission of Nigeria (ECN)
ordination of policies in the energy industry.
Concerned with policy and oversight of the Nigerian
Federal Ministry of Power
Electricity Supply Industry (NESI)
Established in 2010 to manage the implementation of
Gas Aggregation Company of Nigeria domestic gas supply obligation regulations.
(GACN) Will act as the facilitator between suppliers and purchasers
of natural gas.
Eight power plants with an installed capacity of 2,127 MW of
Independent Power Producers (IPPs) which 1,320 MW is available.
Plants use either gas or oil.
Niger Delta Power Holding Company Ltd

Holding company of NIPP Companies
(NDPHC)
Independent agency established to regulate the power

sector in Nigeria.
Led by seven Commissioners representing six geopolitical
zones and one Commissioner who serves as the Chairman
and Chief Executive Officer.
Responsible for, inter alia:
Nigeria Electricity Regulatory Commission - The issuance and renewal of generation, transmission
(NERC) and distribution licences.
- The determination of tariffs that sector participants may
charge for their products and services.
- Monitor the operation of the Nigerian Electricity Supply
Industry (NESI)
- Setting and amending, where necessary, rules and
standards of the industry.
Primarily responsible for the planning, dispatch and
operation of the transmission system.
Also charged with maintaining the security and reliability of
Nigeria System Operator (NSO)
the national electricity grid.
Once the Transitional Electricity Market (TEM) is declared,
TCN will assume this role.
Once the Transitional Electricity Market (TEM) is declared,
NBET will be the State entity responsible for purchasing
Nigerian Bulk Electricity Trading PLC
electricity from generation companies under long term
(NBET)
Power Purchase Agreements and selling it to distribution
companies.
Established in 2006 to assume and manage the liabilities
and non-core assets of the PHCN successor companies in
Nigerian Electricity Liability Management
order that they be sold to private investors with clean
Company (NELMCO)
balance sheets.
It is a company limited by FGN guarantee.
One of the subsidiaries of Nigerian National Petroleum
Corporation.
Nigerian Gas Company Limited (NGC)
Responsible for the transportation of natural gas through its
pipeline network.
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Nigerian Power Sector Key Industry Participants (continued)
10 Companies, each owning one gas-fired plant and

transmission infrastructure in associated distribution zones.
Launched in 2004 under separate independent holding
NIPP Generation Companies (NIPPs) company, (NDPHC) to the PHCN power plants.
Intended as a fast-track initiative to provide 4,500 MW of
power.
The NIPPs are currently in the process of being privatised.
Licensed to function as the Market Operator of the

wholesale electricity market until the start of the Transitional
Electricity Market (TEM) when TCN will assume this role.
Operator of the Nigerian Electricity Market
It is the administrator of the metering system among
(ONEM)
generation, transmission and distribution companies.
Settlements and overall operation of the electricity market
are within its remit.
11 distribution companies covering all 36 states and the

PHCN Successor Distribution Companies Federal Capital Territory.
(Successor DisCos) Privatised in February 2013. Assets handed over to new
investors in November 2013.
Six power generation companies created in the unbundled
state power company PHCN, the successor company to the
Power Holding Company of Nigeria vertically-integrated Nigerian Electric Power Authority
(PHCN) Successor Generation Companies (NEPA).
(Successor GenCos) Two hydroelectric plants and four gas fired plants.
Privatised in February 2013. Assets handed over to new
investors in November 2013.
Created in 2010 as the implementing arm of the Presidential
Action Committee on Power (PACP)
It is responsible for coordinating the activities of the
numerous agencies in the promotion of private sector
involvement in the Nigerian power sector. In this vein, a key
part of its role is to eliminate red tape and inefficient
Presidential Task Force on Power (PTFP)
decision-making in government.
Another key duty is to monitor the planning and execution of
various short-term projects in generation, transmission,
distribution and fuel-to-power that are essential to achieving
the targets of the power industry as set out in the Roadmap
to Power Sector Reform.
A parastatal under the Ministry of Power, it was established
under the EPSR Act and charged to promote, support and
Rural Electrification Agency extend the supply of electricity to rural and semi-urban areas
of the country.
It administers the Rural Electrification Fund (REF)
State entity responsible for the transmission of electricity
from power plants to distribution companies, eligible
customers and for export.
Transmission Company of Nigeria (TCN)
Acts as both the market operator and system operator.
Managed by Manitoba Hydro International of Canada under
a three-year management contract.
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Appendix 3: Australias Tariff Methodology
The methodology adopted by NERC for MYTO is most typically used in electricity markets where the regulator
imposes a degree of control over prices. For example, in Australia the retail tariff in most states is set at a level
generation and distribution companies can recover their costs plus a reasonable margin, here between 3-
10%. The costs are those the regulator deems an efficient retailer would expect to incur.
The components of the costs that feed into retail tariffs are depicted in Table 39:
Table 39: Costs that Feed into Retail Electricity Prices in Australias National Electricity Market (NEM)
Approx. % of Retail Prices Recoverable Costs
Customer acquisition and

Retail Operating
Reset every 1-3 years 20% retention expenses, meter
Costs plus a Margin
reading, billing and marketing
Reset every 5 years. Operational & maintenance

Transmission
10% expenditure e.g. wages, rent;
Charges
return on capital (the largest
Network Costs Network revenues 51% components for both
capped by the transmission and distribution
Australian Energy Distribution networks); asset depreciation
~35-50%
Regulator Costs costs; tax liabilities
Determined every 5
minutes.
Wholesale
Set in the National
Electricity 20%
Electricity Market.
Generation Costs
Price cap exists but is

rarely binding.
Carbon Price 9%
Source: CSL Research, Australian Energy Market Operator

The NEM interconnects five regional market jurisdictions (Queensland, New South Wales, Victoria, South Australia and Tasmania). West
Australia and Northern Territory are not connected to the NEM.
NEM infrastructure comprises both state and private assets managed by many participants. It has a total electricity generating capacity of
around 50,000 MW.
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Appendix 4: MYTO II Methodology in Detail
MYTO II Electricity Generation Prices

Method Used for the Revenue Requirement for Generation:
Long Run Marginal Cost (LRMC). This method looks at the full life cycle costs of the lowest (cost) efficient
new entrant generator.
Application
1. Benchmark costing creates a proxy market price for an efficient generator.
2. Individual LRMC for each generator depending on its location and plant-specific characteristics.
Component Costs that Need to Be Covered:

Fuel, capital (capex and depreciation), fixed and variable operating and maintenance, company tax and
transmission costs.
Other considerations:
WACC Weighted Average Cost of Capital of the GenCo.
48
Plant Capacity factor ratio of actual output (MWh) to potential output at Nameplate capacity (MWh)
Plant Availability factor ratio of available capacity to installed (nameplate) capacity.
Conversion efficiency efficiency in converting gas thermal energy into electrical energy.
Internal energy use of the plant
Marginal Loss Factor (MLF) the reciprocal of Transmission Loss (1 MLF). Losses vary depending on
the position of the GenCo in relation to the load/connection point (node) to the transmission network. They
also vary depending on the location of new generation and load growth.
Generators are expected to cover the losses associated with transmission. Therefore they must supply
enough electricity at the supply point to cover their contractual (PPA) obligations and losses associated
with the connection point. MLF is calculated by estimating the losses pertaining to injecting an additional
unit of energy at that point. NERC has set a uniform MLF for the TCN network at 0.9195, reflecting the
technical losses on the transmission system estimated at 8.05%.
48
For example if a 1 MW generator produced 4,000 MWh over a year, its capacity factor would be 0.46 (4000 MW [1MW
8760hrs per year]).
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MYTO II Transmission Prices

Method Used for the Revenue Requirement for Transmission:
Building Blocks Approach. The building blocks are:
A. Return on capital at a level NERC deems necessary to achieve a fair (market based) rate of
return on capital employed (assets, LT debt service).
B. Depreciation to recoup the actual capital invested over the lifetime of the asset.
C. Operating costs and overheads only those that an efficient operator would incur.
Application
There are three categories of payments made by users of transmissions services:
1. A connection charge for new generators and load customers;

2. Transmission Use of System (TUOS) charge paid by distributors/retailers;
3. A transmission loss factor applied to generation so generators cover costs associated with
transmission losses. (Generators pass this cost on as it is included in the generation tariff).

Cost of connecting new generators and load customers to the network; The fixed costs of building and
maintaining the network, depreciation and a return on capital employed; network operating and
maintenance costs.
To calculate the annual value to each of the components of the building blocks (A-C above), estimates of
the following were required:
Initial value of NESIs invested capital historical to date.
Future Capex based on forecast foreseeable growth.
WACC applicable Weighted Average Cost of Capital
Depreciation an appropriate method
Operating expenses and overheads an efficient level.
Improvement of industry losses the rate of improvement over the tariff period.
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MYTO II Distribution Prices

Method Used for the Revenue Requirement for Distribution:
Building Blocks Approach. The building blocks are:
A. Return on capital at a level NERC deems necessary to achieve a fair (market based) rate of return
on invested capital.
B. Depreciation to recoup the actual capital invested over the lifetime of the asset.
C. Operating costs and overheads only those an efficient operator would incur.
Application
1. MYTO II sets Distribution Use of System (DUOS) charges.
2. The annual revenue requirement for the entire distribution network was calculated. This was then divided
by the amount of power projected to be delivered to each of the 11 DisCos. From their respective
allocations, the DisCos produce a DUOS charge per unit of energy on which basis electricity is sold within
their area.
3. MYTO II distribution tariff also includes DisCos return on working capital so that cash flows are sufficient
to service their debt.

- Payments to GenCos based on the wholesale tariff or price set in the relevant PPA for electricity
injected into the transmission network.
- TUOS charge for each MWh delivered to the DisCos bulk supply point.
- Cost of electricity distribution through the DisCos own network to the end customer.
- Marketing, metering, billing and revenue collection.
- Institutional charges
- FGN tariff subsidy for the most vulnerable customer tariff classes.
To calculate the annual value to each of the components of the building blocks (A-C above), estimates of the
following were required:
Initial value of NESIs invested capital historical to date.
Future Capex based on forecast foreseeable growth.
WACC applicable Weighted Average Cost of Capital
Depreciation an appropriate method
Operating expenses and overheads at an efficient level.
Improvement of industry losses the rate of improvement over the tariff period.
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Appendix 5: OCGT and CCGT Power Plants
Figure 46: Operation of an Open Cycle Gas Turbine Plant
Source: Power Generation Siemens, CSL Research
Figure 47: Operation of a Combined Cycle Gas Turbine Plant
Source: Power Generation Siemens, CSL Research
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Table 40: Key Data and Figures for Natural Gas-Based Power Technologies
Technical Performance Typical Current International Values and Ranges
Energy input Natural gas

Output Electricity
Technologies OCGT CCGT
Efficiency, % 35 42% 52 60%

Construction time, months Minimum 24; Typical 27; Maximum 30
Technical lifetime, yr 30
Load (capacity) factor, % 10 20 20 60
Max. (plant) availability, % 92
Typical (capacity size, MW (est.) 10 300 60 430
Installed (existing) capacity, GW (est.) 1,168 (end of 2007)
Average capacity aging Differs from country to country. CCGT construction started end of 1980s
Environmental Impact
CO2 and other GHG emissions,
480 575 340 400
kg/MWh
NOx, g/MWh 50 30
Costs (US$ 2008)
Investment cost, inc. IDC, US$/kW 800 1,000; Typical 900 (2010) 1,000 1,250; Typical 1,100 (2010)
O&M cost (fixed and variable),

36 44
US$/k/W per annum
Fuel cost, US$/MWh 45 70 30 45
Economic lifetime, yr 25
Interest rate, % 10
Total production cost, US$/MWh 200 225 / Typical 210 65 80 / Typical 72.5
Market share 20
Data Projections 2010 2020 2030
Technology OCGT CCGT OCGT CCGT OCGT CCGT
Net Efficiency (LHV), % 35-42 52-60 45 64 45 64

Investment cost, incl. IDC, US$/kW 900 1100 850 100 800 900
Total production cost, US$/MWh 100 72.5 95 70 95 70
Market share, % global electricity

20 18 15
output
Source: International Energy Agency, ETSAP Technology Brief E02 April 2010
O&M Operation & Maintenance
LHV Lower Heating Value
GHG Green House Gas
IDC Interest during construction
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Appendix 6: Other Electricity Sector Licensees

Licence Licence
Licensee Licence State Extension/ Review
Issued Expires
1 Aba Power Ltd. Distribution Abia State 07/12/2006 06/12/2006 Extended to 06/12/2021
2 Abuja Electricity Distribution Co Plc Distribution FCT, Niger, Kogi and 04/09/2012 03/09/2022 Extended to 03/09/2027
Nassarawa States
3 AES Nigeria Barge Ltd. Generation On-Grid 270MW FCT 15/08/2000 14/08/2025 Licence issued by Federal
Ministry of Power & Steel
4 Afam Power Plc Generation On-Grid 987.2MW Rivers State 04/09/2012 03/09/2027
5 African Oxygen & Industrial Gases Ltd. Generation On-Grid 19MW Lagos State 02/12/2011 01/12/2021
6 Agbara Shoreline Power Ltd. Generation On-Grid 100MW Ogun State 28/09/2007 27/09/2017
7 Akute Power Ltd. Generation Off-Grid 13MW Lagos Water Corporation, 25/03/2010 02/03/2011 Renewed 02/12/2011 to exp.
Lagos State 01/12/2021
8 Alaoji Generation Co. Ltd. (NIPP) Generation On-Grid 1074MW Abia State 29/11/2011 28/11/2021
9 Anita Energy Ltd. Generation On-Grid 90MW Lagos State 12/04/2007 11/04/2017
10 Azura Power West Africa Ltd. Generation On-Grid 450MW Edo State 30/11/2011 29/11/2021
11 Benin Electricity Distribution Co Plc Distribution Edo, Delta, Ondo and Ekiti 04/09/2012 03/09/2022 Extended to 03/09/2027
States
12 Benin Generation Company Ltd. Generation On-Grid 450MW Ihonvbor, Edo Sate 09/01/2013 08/01/2013
13 Calabar Generation Company Ltd. Generation On-Grid 561MW Cross Rivers State 09/01/2013 08/01/2023
14 Century Power Generation Ltd. Generation On-Grid 495MW Anambra State 20/09/2012 19/09/2022
15 CET Power Projects (Ewekoro) Generation Off-Grid 6MW Lafarge WAPCO (Ewekoro, 03/05/2011 02/05/2021
Ogun State)
16 CET Power Projects Ltd. Generation Off-Grid 20MW Cross River State 28/09/2007 27/09/2008 Renewal being processed
17 CET Power Projects Ltd. Generation Off-Grid 5MW Nigerian Breweries Limited 16/01/2009 15/01/2010 Renewed 04/10/2010 to exp.
(Lagos State) 03/10/2020
18 CET Power Projects(Sagamu) Generation Off-Grid 7MW Lafarge WAPCO Sagamu 03/05/2011 02/05/2021
(Ogun State)
19 Contour Global Solutions (Nig) Ltd. Generation Off-Grid 10MW NBC Bottling Plant (Ikeja, 04/06/2010 03/06/2020
Lagos State)
20 Contour Global Solutions (Nig) Ltd. Generation Off-Grid 4MW NBC Bottling Plant (Apapa, 04/06/2010 03/06/2020
Lagos State)
21 Contour Global Solutions (Nig) Ltd. Generation Off-Grid 7MW NBC Bottling Plant (Edo State) 04/06/2010 03/06/2020
22 Coronation Power and Gas Ltd. Generation Off-Grid 20MW Sona Group (Sango Ota 03/11/2009 02/11/2010 Renewal being processed
Industrial Area, Ogun State)
23 Delta Electric Power Ltd. Generation On-Grid 116MW Oghareki, Etiope West LGA, 29/11/2011 28/11/2021
Delta State
24 DIL Power Ltd. Generation Off-Grid 114MW Cement factory, (Ogun State) 13/04/2012 12/04/2022
25 DIL Power Plc Generation On-Grid 135MW Kogi State 26/10/2009 25/10/2019
26 Egbema Generation Company Ltd. (NIPP) Generation On-Grid 338MW Imo State 09/01/2013 08/01/2023
27 Egbin Power Plc Generation On-Grid 1320MW Lagos State 04/09/2012 03/09/2022 Extended to 03/09/2027
28 Eko Electricity Distribution Co Plc Distribution Lagos South, Lagos State 04/09/2012 03/09/2022 Extended to 03/09/2027
29 Eleme Petrochemical Company Ltd. Generation On-Grid 135MW Eleme Complex - Port 22/08/2011 21/08/2021
Harcourt, (Rivers State)
30 Energy Company of Nigeria (NEGRIS) Generation On-Grid 140MW Lagos State 29/09/2011 28/09/2021
31 Energy Company of Nigeria Ltd. Generation Off-Grid 3MW Nestle (Ogun State) 29/08/2011 28/08/2021
32 Energy Company of Nigeria Plc Distribution Lagos State 15/12/2011 14/12/2021
33 Enersys Nigeria Ltd. Generation On-Grid 10MW Ekiti State 26/09/2012 25/09/2022
34 Enugu Electricity Distribution Co Plc Distribution Enugu, Abia, Imo, Anambra 04/09/2012 03/09/2022 Extended to 03/09/2027
and Ebonyi States
35 Ethiope Energy Ltd. Generation On-Grid 2800MW Delta State 24/08/2006 23/08/2016
Source: NERC, NDPHC, CSL research

Licensees as at 31 July 2014
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Licence Licence
Licensee (continued) Licence State Extension/ Review
Issued Expires
36 Ewekoro Power Ltd. Generation Off-Grid 12.5MW WAPCO (Ogun State) 07/12/2006 06/12/2008 Renewal being processed
37 Farm Electric Supply Ltd. Generation On-Grid 150MW Ogun State 24/08/2006 23/08/2016
38 First Independent Power Co. Ltd. Generation On-Grid 150MW Omoku, Rivers State 21/05/2007 20/05/2017
39 First Independent Power Co. Ltd. Generation On-Grid 136MW Trans-Amadi, Rivers State 21/05/2007 20/05/2017
40 First Independent Power Co. Ltd. Generation On-Grid 95MW Eleme, Rivers State 21/05/2007 20/05/2017
41 Fortune Electric Power Co. Ltd. Generation On-Grid 500MW Odukpani, Cross River State 21/11/2012 20/11/2022
42 Gateway Electricity Ltd. Distribution Off-Grid Certain locations not covered 30/09/2010 29/09/2020
by PHCN in Ogun State
43 Gbarain Generation Company Ltd. Generation On-Grid 225MW Gbarain, Bayelsa State 09/01/2013 08/01/2023
44 Geometric Power Ltd. Generation On-Grid 140MW Aba, Abia State 06/12/2006 06/12/2016 Extended to 06/12/2021
45 Geregu Generation Company Ltd. Generation On-Grid 434MW Geregu, Kogi State 09/01/2013 08/01/2023
46 Geregu Power Plc (BPE) Generation On-Grid 414MW Geregu, Kogi State 21/11/2012 20/11/2022
47 Hudson Power Ltd. Generation On-Grid 150MW Warawa, Ogun State 23/05/2007 22/05/2017
48 Ibadan Electricity Distribution Co Plc Distribution Oyo, Ogun, Osun and Kwara 04/09/2012 03/09/2022 Extended to 03/09/2027
49 Ibafo Power Station Ltd. Generation On-Grid 200MW Ibafo, Ogun State 23/05/2007 22/05/2017
50 Ibom Power Ltd. Generation On-Grid 190MW Ikot Abasi, Akwa Ibom State 12/05/2008 11/05/2018
51 ICS Power Ltd. Generation On-Grid 624MW Alaoji, Abia State 24/08/2006 23/08/2016
52 Ikeja Electricity Distribution Co Plc Distribution Lagos North Lagos State 04/09/2012 03/09/2022 Extended to 03/09/2027
53 Ikorodu Industrial Power Ltd. Distribution for Ewekoro Cement Ltd Ikorodu, Lagos State 07/12/2006 06/12/2016
54 Ikorodu Industrial Power Ltd. Embedded Generation 39MW Ikorodu, Lagos State 07/02/2006 06/02/2016
55 Ilupeju Power Ltd. Generation Off-Grid 2MW Academy Press, (Lagos 06/05/2011 05/05/2021
State)
56 Income Electrix Ltd. Generation Off-Grid 6MW NPA, PH, Rivers State 02/06/2012 01/06/2021
57 Island Power Ltd. Embedded Generation 10MW Marina, Lagos State na na
58 Isolo Power Generation Ltd. Generation On-Grid 20MW Isolo Lagos State 04/10/2012 03/10/2022
59 JBS Wind Power Ltd. Generation On-Grid 100MW Maranban Pushit, Mangu, 11/10/2012 10/10/2022
Plateau State
60 Jos Electricity Distribution Co Plc Distribution Plateau, Bauchi, Benue and 04/09/2012 03/09/2022 Extended to 03/09/2027
Gombe State
61 Kaduna Electricity Distribution Co Plc Distribution Kaduna, Sokoto, Kebbi and 01/07/2006 na
Zamfara States
62 Kaduna Power Supply Company Ltd. Embedded Generation 84MW Kudenda Industrial Area, 04/09/2012 03/09/2022 Extended to 03/09/2027
Kaduna State
63 Kainji Hydro Electric Plc (Jebba Station) Generation On-Grid 570MW Jebba, Niger State 04/09/2012 03/09/2022 Extended to 03/09/2027
64 Kainji Hydro Electric Plc (Kainji Station) Generation On-Grid 760MW Kainji, Niger State 04/09/2012 03/09/2022 Extended to 03/09/2027
65 Kano Electricity Distribution Co Plc Distribution Kano, Jigawa and Katina 04/09/2012 03/09/2022 Extended to 03/09/2027
States
66 Knox J&L Energy Solutions Ltd. Generation On-Grid 1000MW Ajaokuta, Kogi State 01/10/2011 10/11/2021
67 Lotus & Bresson Nigeria Ltd. Generation On-Grid 60MW Magboro, Ogun State 12/04/2007 11/04/2017
68 Mabon Ltd. Generation On-Grid 39MW Dadinkowa, Gombe State 07/12/2006 06/12/2016
69 MBH Power Ltd. Generation On-Grid 300MW Ikorodu, Lagos State 28/11/2011 27/11/2021
70 Minaj Holdings Ltd. Generation On-Grid 115MW Agu-Amorji Nike, Enugu East 13/02/2008 12/02/2018
LGA, Enugu State

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Licence Licence
Licensee (continued) Licence State Extension/ Review
Issued Expires
71 Nigerian Agip Oil Co. Ltd. Generation On-Grid 480MW Okpai, Delta State 29/11/2017 28/11/2027
72 Nigerian Bulk Electricity Trading Plc (NBET) Bulk procurement and resale of electricity 15/11/2011 14/11/2021
73 Nigerian Electricity Supply Corporation Generation On-Grid 30MW Bukuru, Plateau State 09/08/2000 08/08/2025 Licence issued by the Federal
(Nigeria) Ltd. (NESCO) Ministry of Power & Steel
74 Notore Power Ltd. Generation On-Grid 50MW Onne, Rivers State 25/09/2008 24/09/2018
75 Ogorode Generation Co. Ltd. (NIPP) Generation On-Grid 450MW Ogorode, Delta State 29/11/2011 28/11/2021
76 Olorunsogo Generation Co. Ltd. (NIPP) Generation On-Grid 750MW Oluronsogo, Ogun State 29/11/2011 28/11/2021
77 Olorunsogo Power Plc (BPE) Generation On-Grid 335MW Olorunsogo, Ogun State 21/11/2012 20/11/2022
78 Omoku Generation Company Ltd. Generation On-Grid 250MW Omoku, Rivers State 09/01/2013 08/01/2023
79 Omotosho Generation Company Ltd. Generation On-Grid 500MW Omotosho II, Ondo State 09/01/2013 08/01/2023
80 Omotosho Power Plc (BPE) Generation On-Grid 335MW Omotosho, Ogun State 21/11/2012 20/11/2022
81 Paras Energy & Natural Resources Generation On-Grid 96MW Ogijo,Ogun State 04/06/2010 03/06/2020
Development Ltd.
82 Port Harcourt Electricity Distribution Co Plc Distribution Rivers, Cross River, Bayelsa 04/09/2012 03/09/2022 Extended to 03/09/2027
and Akwa Ibom States
83 PZ Power Company Ltd. Generation Off-Grid 4MW PZ Cussons Aba Factory - 06/12/2012 05/12/2022
Abia State
84 Sapele Power Plc Generation On-Grid 1020MW Sapele, Delta State 04/09/2012 03/09/2022 Extended to 03/09/2027
85 Shell Petroleum Development Co. Ltd. Generation On-Grid 642MW Afam VI - Delta State 13/06/2007 12/06/2017
86 Shiroro Hydro Electricity Plc Generation On-Grid 600MW Shiroro, Niger State 04/09/2012 03/09/2022 Extended to 03/09/2027
87 Shoreline Power Company Ltd. Generation Off-Grid 9MW Lafarge Wapco - Sagamu, 05/05/2011 04/05/2021
Ogun State
88 Supertek Electric Ltd. Generation On-Grid 500MW Ajaokuta, Kogi State 06/12/2012 05/12/2022
89 Supertek Nig. Ltd. Generation On-Grid 1,000MW Akwete, Abia State 24/08/2007 23/08/2017
90 Tower Power Abeokuta Ltd. Generation Off-Grid 20MW Abeokuta, Ogun State 26/08/2011 25/08/2021
91 Tower Power Utility Ltd. Generation Off-Grid 20MW Ota Industrial Estate - Ota, 07/05/2009 06/05/2010 Renewed on 04/10/2010 to
Ogun State expire 31/10/2020
92 Transmission Company of Nigeria Transmission and wheeling of electricity covering 36 States of the 04/09/2012 03/09/2022 Extended to 03/09/2027
federation
93 Ughelli Power Plc Generation On-Grid 942MW Ughelli, Delta State 04/09/2012 03/09/2022 Extended to 03/09/2027
94 Unipower Agbara Ltd. Generation Off-Grid 6MW Unilever - Agbara, Ogun State 02/11/2011 01/11/2021
95 Wedotebary Nigeria Ltd. Generation Off-Grid 5MW Kuru, Jos, Plateau State 03/11/2009 02/11/2010 Renewal being processed
96 Westcom Technologies & Energy Services Generation On-Grid. 1000MW Sagamu, Ogun State 23/02/2007 22/02/2017
Ltd.
97 Yola Electricity Distribution Co. Distribution Adamawa, Borno, Taraba and 04/09/2012 03/09/2022 Extended to 03/09/2027
Yobe States
98 Zuma Energy Nigeria Ltd. (Gas Plant) Generation On-Grid 400MW Ohaji-Egbema, Owerri, Imo 02/12/2011 01/12/2021
State
99 Zuma Energy Nigeria Ltd. (Coal Plant) Generation On-Grid 1200MW Itobe, Kogi State 30/11/2011 29/11/2021

United Kingdom
The World Bank official advised the Nigerian Electricity Regulatory Commission
(NERC) to make a provision in its rules to adjust tariffs in times of low generation
and shortage of gas supply.
THE PRESIDENCY
Bureau of Public Enterprises
The Secretariat of National Council on Privatisation
United Kingdom
Mr Antman, drawing from experiences in other countries, said these challenges
11, Osun Crescent, Off Ibrahim Babangida Way
Maitama District, P.M.B 442, Garki, Abuja, Nigeria are normal at the early stages. Urging Investors not to focus on short term
Telefax (234-9) 4138861 gains, but invest in infrastructure that will guarantee sustained future profits.
E-mail: janichebe@bpeng.org
Web Site: http://www.bpeng.org
It would be recalled that Nigerian banks had expressed concern over the
possibility of losing about N1 trillion they invested in the acquisition of the
privatized assets of the Power Holding Company of Nigeria (PHCN) Successor
The Director General of the Bureau of Public Enterprises (BPE), Mr. Benjamin Companies (SCs).
Dikki has faulted claims of the imminent collapse of commercial banks in the
country over their exposure to the power sector. The banks expressed fears that they may be unable to recoup their investment
following the myriad of problems facing the sector.
Speaking at an all-parties meeting on Wednesday, May 21,2014 in Abuja at a
presentation to the owners of the Power Holding Company of Nigeria (PHCN) Group Managing Director/Chief Executive Officer, Diamond Bank Plc, Dr. Alex
Successor Companies (SCS) by the Africa Energy Team of the World Bank, Dikki Otti, had at a power investors' forum in Abuja, said that as at 2013, the banking
noted that the fears by some of the eminent takeover of SCS due to the industry had invested well over N750 billion in the power sector and that they
purported non servicing of loans or about the prospect of stress to the banks due were ready to do more.
to their exposure to SCS, were misplaced as the Successor Companies did not
borrow directly from the banks for their own books. Furthermore, no assets of Consequently, the banks called for an increase in electricity tariff and in the price
the SCS were pledged as collateral. It should be noted that it was the acquiring of gas, saying it would boost the revenue profile of the power companies and
companies or SPV's that borrowed based on their cash flows and accounts. The their ability to repay their debts. Some of the chief executives of banks, who
SPA signed also requires that the consent of the BPE is obtained before the Core spoke at the just concluded Seventh Lagos Economic Summit, tagged Ehingbeti
Investors can borrow. 2014, complained of the revenue profile of the recently privatized power
companies, saying it is not meeting the expectation of investors.
"The banks lent to the Core Investors based on their capability to pay. The
investors are supposed to have made adequate provisions to take care of their
obligations to their financiers from the outset. They knew that they were not
going to make profit immediately on takeover of the SCS. Their financiers also CHIGBO ANICHEBE
were aware of this", he stressed. Head, Public Communications
Appendix 7: Official Press Releases
May 22, 2014

During the presentation entitled "Reform of the power sector in Latin American
countries in the 1990s", aimed at sharing experiences of the power sector
privatization in these countries, Mr. Pedro Antmann reminded the investors that
their primary focus should be to provide adequate and efficient power supply to
Nigerian consumers.
He said that there were unusually challenges at the initial stages of the
privatisation exercise but that with determination and the right strategy, it would
be surmounted.
Antmann urged the investors not to aim at making profit now but to endeavour
to develop infrastructure and to meet the cost of supply.
Infrastructure
Page 195
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Nigerian Power Sector Infrastructure

Domestic Supply Obligation and Gas Pricing Policy

Before the DSO was introduced and became operational in 2010,

US$2.50 per Mcf

Source: NERC, CSL Research Source: NERC, US EIA, CSL Research

Figure 30: Operation of the Domestic Supply Obligation

Domestic Buyers Other Exports

Power Fertiliser Methanol Regional Pure Liquefaction

Gas Transmission Line

Integrated LNG Plant

Gas for Own Export

Domestic Supply Obligation

Source: CSL Research

Gas Aggregation Company

Figure 31: Operations of the Gas Aggregation Company of Nigeria

Power Sector Price Supplier 1

GBI Sector Price GACN Supplier 2

LDC Sector Price Supplier 3

Source: CSL Research, GAGN

Gas Flaring Financial Waste & Environmental Scourge

It is estimated that flaring gas costs Nigeria between US$2.5-3.0 billion a

Gross Production Flared/Vented % Flared/Vented

Source: US EIA, CSL Research Source: NNPC, CSL Research

35 91% 90% 90% 100%

Source: US EIA, CSL Research

World Rank CO2 Emissions from Flaring

Pragmatism on Green Electricity and the Environment

We acknowledge that thermal power generation is far from being carbon-

environment. The advantage of having efficient electrical power supply to

Figure 32: Gas Processing and Transport in Nigeria

Lean Gas Transmission Line

Gas processed and Power Plants

Source: CSL Research

Figure 33: The Privatised Nigerian Electricity Supply Industry

Private Private Private

Source: CSL Research

Credit Where and When Due

Leadership and Intellectual Capital Responsibility

The Privatisation Process What, When & How?

Purchasers of Successor GenCos and DisCos

Table 21: Purchasers of Successor DisCos

Bid Stake Distribution

Benin Electricity DisCo Vigeo Power Consortium 129.0 60% 1,855

Enugu Electricity DisCo Interstate Electric Consortium 126.0 60% 1,920

Ikeja Electricity DisCo NEDC/KEPCO Consortium 131.0 60% 2,077

Jos Electricity DisCo Aura Energy Ltd 82.0 60% 714

Kaduna Electricity DisCo Northwest Power Ltd. 201.0 60% 1,233

Port Harcourt Electricity DisCo 4Power Consortium 124.2 60% 1,164

Table 22: Purchasers of Successor GenCos

Bid Stake Installed

Afam Power Taleveras Energy Group 260.1 60% 776

Egbin Power NEDC/KEPCO Consortium 407.3 70% 1,320

Sapele Power CMEC/EURAFIC Energy Consortium 201.0 100% 1,020

Ugheli Power Transcorp Consortium 300.0 100% 942

Share Sale Agreements (DisCos and thermal GenCos)

Concession Agreements (Hydro GenCos)

Gas Supply and Aggregation Agreements

Gas Transportation Agreements

Power Purchase Agreements (GenCos; 15 year duration): capacity

Vesting Contracts (DisCos; 15 year duration)

Transmission Use of Network System Agreements

Grid Connection Agreements

Ancillary Services Agreements