Ownership structure of Discos may result in conflict of interest, in-fighting

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A man walks past electricity pylons as he returns from work in Soweto, outside JohannesburgThe ownership structure adopted for the Power Holding Company of Nigeria’s distribution companies  (Discos) under the power sector privatisation may result in conflict of interest, in-fighting and eventual collapse of the joint venture, Energy analyst and Principal Partner at KayafasKonsult Ltd, a regulatory consulting firm, Mr. S. A. Bello has said.

Bello said the ownership structure of the distribution companies, showed that buyers of the discos had 50 per cent share in the companies, while the federal and state governments own the remaining 50 per cent.
He noted the government adopted the same method in 2006, when it sold 51 per cent of NITEL to Transcorp and the method was characterised by wrangling and in-fighting among board members.
According to him, the board of NITEL was split between civil servants and private sector operators; two partners with diametrically opposing interests and this resulted in boardroom crisis.

“The distribution companies have  a more complex  ownership structure with 50 per cent owned by the buyers, 50 per cent by federal and state governments, though changes to this ownership structure is still being contemplated. This is an invitation to boardroom crises. The economic marriage is likely to end in divorce sooner or later. It was the same method adopted when 51 per cent of NITEL was sold to Transcorp in 2006. The board of NITEL was split between civil servants and private sector operators; two partners with diametrically opposing interests. There were serious conflicts and in-fighting in the board according to newspaper reports. Eventually the marriage ended in divorce.”

Cautioning against a repeat of the Transcorp /FGN NITEL episode, Bello said: “We must be careful that the ownership structure adopted for PHCN distribution companies does not lead to a joint venture collapse as was the case with Transcorp and the Federal Government during the abortive privatisation of NITEL.”

He expressed fears that capital contribution problems may likely arise with this ownership structure. “It means that for every N100  invested by the private partners, government must match it by also investing 100 naira. Senate may not approve such counterpart capital contribution by government. If by chance it is approved, there may be up to six months delay in budget approval”.

He continued: “After approval, the Ministry of Finance may not release the cash-backing in another three to six months. Will the private investor be ready to wait for nine months for capital contribution from government? If the board is split 50-50 in accordance with the number of shares held, government board members may frustrate or delay critical strategic decisions or hold the company to ransom. If by chance there is a change of government either at state or federal level, funds may stop being released.”

Bello therefore said three possible ways out were to either sell the distribution companies 100 per cent to private investors or sell the 50 per cent government share to Nigerians through the stock exchange within three months of privatisation.
Alternatively, he added, there should be a clause in the contract that allows the investor to gradually reduce government shares if they fail to contribute their share of investment or operational capital and a consequent reduction in board membership in proportion to the percentage of shares held.

The various successor distribution companies, being privatise are: Abuja Electricity Distribution Plc; Benin Electricity Distribution Plc; Eko Electricity Distribution Plc; Enugu Electricity Distribution Plc; Ibadan Electricity Distribution Plc ; Ikeja Electricity Distribution Plc; Jos Electricity Distribution Plc; Kaduna Electricity Distribution Plc; Kano Electricity Distribution Plc; Port Harcourt Electricity Distribution Plc and Yola Electricity Distribution Plc.

 

Information from This Day was used in this report.