State governments keen on providing their citizens with improved access to electricity can now enter an agreement with any of the power distribution firms on sharing the capital investments required to rehabilitate and expand electricity distribution network in their domains.

The National Council on Privatisation (NCP), which gave the approval at its first meeting for 2012 in Abuja, said the capital contribution would have to be secured and repaid on terms mutually agreed with the distribution company.

“In accordance with the Independent Electricity Distribution Network (IEDN) regulation to be enacted by the Nigerian Electricity Regulatory Commission (NERC), a state that desires to build independent electricity distribution networks within areas of its State not currently served within each distribution franchise area could do so. This would be subject to such a State being licensed to do so by Nigeria Electricity Regulatory Commission (NERC) without unnecessary delay,” the NCP said.

According to the NCP, though the acquired assets would become the property of the distribution company, it would be utilised wholly within the state for the benefit of its citizens, while the state would be entitled to compensation so far as it conforms to the tariff methodology approved by the NERC.

Similarly, all excess capital costs are to be shouldered by the state government while the distribution companies would not pay any interest on any investment undertaken by the state.

Other decisions taken during the meeting presided over by Vice President, Namadi Sambo, include that the percentage equity that state governments can hold in a distribution company would be determined through an independent valuation by an agency jointly appointed by the state governments in conjunction with NERC of actual investments in the distribution network.

Given the economic un-viability of re-delineating the distribution companies along state boundaries, the NCP approved that the present privatisation framework of 11 distribution companies created from the unbundling of the Power Holding Company of Nigeria (PHCN) should be maintained.

“60 per cent of the shares of a distribution company should be sold to core investors to allow state governments participate in the bidding consortia, while limiting the overall federal and state government shares to 49 per cent,” the NCP said, adding that federal and state governments would not play any role in the management of the privatised successor companies.

The privatization agency also limits workers’ allotment to a maximum of 2 per cent of the overall shares, or 10 per cent of the federal government shares in each distribution company, while shareholders’ agreements signed between the governments and core investors in each distribution company must clearly provide for automatic reduction of any government equity if it fails to meet its payment obligations.

States may also provide counter-guarantees to the distribution companies to cover shortfalls in payments due from the distribution companies for energy supplied to customers within the territorial boundaries of the respective States.