FG pays Disco $186m in last minute deal

The core investors, Integrated Energy and Distribution Company (IEDM) had declared force majeure saying insurgency had crippled its operations in three north eastern states.It invoked the force majeure clause in the agreement and requested the government to take back the Yola Disco and repay the company a total of $146.8 million.Daily Trust reported exclusively on […]

The core investors, Integrated Energy and Distribution Company (IEDM) had declared force majeure saying insurgency had crippled its operations in three north eastern states.
It invoked the force majeure clause in the agreement and requested the government to take back the Yola Disco and repay the company a total of $146.8 million.
Daily Trust reported exclusively on Tuesday that the BPE had recommended $146.8 million (about N29.2 billion) to the National Council on Privatisation (NCP) to be paid to Integrated Energy.
However, Daily Trust learnt reliably weekend that IEDM had made fresh demand which raised the amount to a total of $186 million.
President Goodluck Jonathan’s administration will end on May 29, five days from today but documents available to Daily Trust reveal the approval of the NCP chaired by Vice President Namadi Sambo had approved the deal.
Reverse mode
Industry watchers are worried that the move could set the entire power sector on reverse mode as other investors could as well get some excuses to get paid back in huge sums while consumers continue to suffer.
This is coming as Vice President-elect Prof. Yemi Osinbajo last week said the incoming government was going to inherit a $60 billion debt from Jonathan. Many states already owe months of unpaid salaries to their workers while fuel scarcity bites harder. Integrated Energy will have the benefit of getting its $59 million from government as the cost of buying the Yola Disco and $87.8 million as 20 percent profit it projected for five years.
The company had been paid a cumulative N4.9 billion since September 2014 to March 2015 in compensation of losses due to Boko Haram insurgency, Daily Trust investigations revealed.
In the latest deal which the Permanent Secretary of the ministry of Power, Dr. Godknows Igali and Director General of the Bureau of Public Enterprises (BPE) Mr. Benjamin Dikki, described as “negotiated down to $192.53 million” from $198.92 million in a letter to the NCP chairman, Vice President Sambo, Integrated Energy is to be paid $143.8 million with immediate effect. The letter was dated May 14, 2015.
The sum of $41.8 million is to be retained by BPE from the total $185.6 million and kept in an escrow account for three months according to BPE and power ministry’s letter to VP Sambo.
In the revised approach to the force majeure, the funding for the buy-back will be sourced from the Nigerian Bulk Electricity Trading (NBET) which was established in 2012 to provide partial guarantee for power producers. It is to buy power from Independent Power Producers (IPPs) and resell to distribution companies (Discos) and other eligible customers.
A source informed Daily Trust that a letter has been dispatched to finance minister, Dr Ngozi Okonjo-Iweala, who is the chairman of the board of NBET where the money is to be sourced. It was not clear if she has approved the money at the time of going to press which a source said was what was desperately needed by those making the push before May 29.
Dr Okonjo-Iweala is already facing harsh criticism from the public for superintending over a damaged economy. 
Up to April 2015, Daily Trust’s check showed that the BPE boss had recommended that action be taken on the political force majeure declared by Integrated Energy by the incoming government. That recommendation was disregarded afterward as the NCP ordered a committee to be set up led by the Permanent Secretary of the power ministry Dr. Godknows Igali and the BPE boss, Benjamin Dikki, for “immediate payment”.
NERC responsibility
The Nigerian Electricity Regulatory Commission (NERC) has the responsibility to provide regulatory oversight in the electricity industry but Daily Trust did not find where it was mentioned in the deal.
Dr Sam Amadi who is the chairman of NERC told Daily Trust that the case was purely transactional between the BPE and the core investor insisting that Yola as a Disco was still up and running from the commission’s view point.
“The commission took a decision not to mingle in cases that are purely transactional. It’s between the BPE and the core investors (Integrated Energy). Our role in the privatization was to evaluate the bids of investors,” he said.
Engr. B.U. Mustapha, a deputy director in the Ministry of Power who hails from Borno State will be appointed Acting Managing Director of the Yola Disco upon consummation of the share buyback deal “pending when peace returns to the area,” while Messrs. Meralco Electric Company of Philippines will be retained as a technical partner for three months.
Schedule of the payments made to the Yola Disco indicated that government paid N282.3 million in September 2014 to it in place of the loss suffered due to Boko Haram’s activities. In October, they were paid N280.9 million; in November, N287.3 million was paid to them while in December, N359 million was paid to the company.
 It received N341.5 million in January this year; N242.1 million in February and N251.9 million for March.
In a letter to the BPE, chairman of the board of Integrated Energy Mr. John Olatunde Ayeni said it could not continue their business of electricity distribution in the four North-east states of Adamawa, Yobe, Borno and Taraba.
It cited clause 7 of the Performance Agreement it signed with the BPE in the purchase of the disco.
Yola Disco is one of the successor companies created following the unbundling of the Power Holding Company of Nigeria Plc (PHCN).
Due diligence
A source who pleaded anonymity said “Boko Haram insurgency was at least three years old in the North-east before the disco was sold. All bidders were expected to do their own due diligence of the company they were buying before making their bid and subsequent payment upon winning the bid.
“These people (Integrated Energy) started writing the BPE on the issue of force majeure ten days after they took over the disco. How can 10 days be enough to decide you are ripe for a force majeure?”
 Mr. John Olatunde Ayeni who is the chairman of Integrated Energy wrote series of letters to the BPE starting as early as November 10, 2013, barely 10 days after it took ownership of the Disco complaining of insurgency related challenges to its business.
In previous letters to the BPE, the IEDM had demanded for $59 million from government as the cost of its shares and $87.8 million as 20 percent profit it projected for five years, giving a total of $146.8 million (N29.2 billion).
In 2013, the federal government handed over 15 electricity firms to core investors amidst fanfare which it described as unprecedented in the country’s move toward energy sufficiency.
The power situation rather than improve has taken a nose dive as the sector struggles to remain afloat.
Eight other Discos apart from Kano and Kaduna have reportedly declared a force majeure as a result of lowering of tariff by NERC in March.
Only last Friday, the permanent secretary of power ministry Dr Igali announced “unprecedentedly low” power supply of 1, 327 megawatts.
He warned that the power situation could get worse if the oil and gas workers’ strike continued.