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KEPCO: BPE May Review Bid Price for Egbin Power Station ndications have emerged that Korea Electric Power Corporation (KEPCO), which had been selected by the National Council on Privatisation as far back as 2007 to acquire the 1,320MW Egbin 'power station in Lagos may have to pay more for a 51 percent stake in the plant before the transaction is concluded. A source told this newspaper last week that the Korean electricity firm, which has reopened negotiation for Nigeria's largest power station in conjunction with a Nigerian firm, Energy Resources Limited, may be asked to renegLltiate the sale of Egbin but this time around under new terms. The KERL (KEPCO/ERL) consortium is a jOint venture, in which the Korean firm holds 30 percent equity while Sahara Energy Resources Limited, a fully integrated energy company with interests in the oil and gas and electricity sectors across Africa, holds 70 percent. The Bureau of Public Enterprises is said to be contemplating tlie price review on the grounds that between 2007 and now when the transaction was stalled after the administration of former President Olusegun Obasanjo handed over to late President Umaru Yar' Adua, the federal government has invested significantly in Egbin to rehabilitate and maintain the power station. Other critical issues iliat have to be resolved before closing the transaction, according to BPE sources, include labour issues, a Gas Purchase Agreement with the Gas Aggregation Company of Nigeria, and the Power Purchase Agreements with the distribution companies and the bulk purchaser set uf. und~r the refor'!'. programme for the e ectnclty sector. ' . The consortium had been selected in 2007 to acquire the plant under a willing buy-willing seller basis by the BPE, followmg KERL's successful rehabilitation of two boiler units (Units 3 and 6) at Egbin in 2006 at a significantly reduced cost of $24 million. BPE at the time had commenced the privatisation of the new business units created from the unbundling of Power Holding of Nigeria, At the time, KERL was favoured by the federal government over Marubeni of Japan, which had originally constructed the plant in the early 1980s and had maintained it under a Hitachi license, but had submitted a quote of

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• Director-general, BPE, Ms Bolanle Onagoruwa

Stories by Festus Akanbi $47 million to repair the units that were bad. During negotiations, a valuation of slightly over $560 million was established for Egbin by BPE and KERL asked to pay $280 million for the 51

percent stake. Under the terms of the transaction, KERL was asked to pay 10 percent of the bid price and escrow a further 50 per cent of the bid price (totaling $168 million), in accordance with the terms of the agreement. KERL complied, leaving an outstanding balance of $112 million. KERL also committed to double Egbin's output through th" construction of an addItional 1350MW combined cycle power plant under the terms of the agreement reached with BPE. When built, the plant will consist of three 450MW combined cycle power blocks. However, the transaction was not concluded before Obasanjo left office and his successor, Yar'Adua, stalled everything relating to privatisation in the power sector, including suspending the construction that was on going under NIPP. But BPE sources disclosed that now that the privatisation process has been restarted, KERL will be invited to conclude negotiations for Egbin under new terms tha t would include a revised bid price. Industry analysts conversant with the transaction, however, informed THISDAY that BPE may hit a brick wall with KERL if it insists on increasing the bid price for the power plant. One analyst explained that there will be no justification for pushing for a higher price because the va1uation undertaken for Egbin in 2007 took into consideration the cost of building a Greenfield thermal station of the same capacity at $1 million per megawatt. "If a brand new power station of the same capacity in 2007, that is, before the

global financial crisis would have cost $1.320 billion, how can you justify a revision of the price now that similar plants are being constructed at approxImately $850,000 per megawatt as a result of lower demand following the global melt down? "Besides, the valuation on Egbin in 2007 failed to factor the depreciation of the plant. No plant appreciates in value, instead they depreciate. "So even if Egbin is amortised over 20 years, which is the estimated life span of a plant of that capacity, and another 10 years is added, it would not attract a valuation of more than the $560 million established for it in 2007," explained the analyst. In addition to valuation of the power plant is that BPE may have failed to factor the interest charges on the $168 million, which the KERL consortium has been paying banks since the amounl was escrowed four years ago. "For instance, at 12 percent per annum charged by an overseas bank, the consortium would have paid nothing less than $80 million in interest charges alone for no fault of its. "Will the BPE or the federal government take responsibility for that or refund the money' the consortium has had to pay banks all this while?" the analyst enquired, He cautioned that the manner,· in which BPE handles this transaction serve as a benchmark for other privatization deals in the power sector, as other investors that have expressed interest in the five generation stations and eleven distribution companies will be watching with keen interest.

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Food Crisis: Nigerian Banks Put on Alert As the threat of a global food shortage looms large, Nigerian banks have been challenged to rally round farmers in order to take advantage of the opportunity in the emerging wor1d food marKet. In its monthly report on the economy, Financial Derivates Company, ad vised that time had come for Nigerian farmers to be propelled not only to meet domestic food needs but also to maximise the opportunity created by the emerging shortfall in global food production, According to the company's March economic report FDC indicated that food prices are expected to remain high m20l'l alid 2012 as global demand continues to outstrip supply,

China Inflation 4.9% in February

Spanish Banks Need Capital Boost

China's inflation rate was unchanged in February from the previous month, though it was quicker than analysts had expected. Consumer prices rose by 4,9% from a year earlier, the National Bureau of Statistics said. In January, the annual figure was also 4.9%, Analysts had expected a rise of 4.7%, Inflation is of major concern in China where flOor families spend up to half their incomes on food.

The Spanish central bank has announced that 12 banks need to boost their capital reserves in order to meet its rules on capital requireIl)ents. The 12in~titu\16ns need an additional 15,15bri euros. ($20.94bn; £13,04bn) in additional capit.al between them, The banks include the Spanish lmits of Deutsche Bank and Barclays Bank. To reach a core capital ratio of 8%, Deutsche and Barclays need an additional 552m euros and 182m euros resoectivelv.

company stated. It stated that in view of the potential of Toe United Nations Food and Ni&erian farmers, banks cannot continue to Agricultural Organisation estimates that walt for government stimulus I;'ackages food prices hit record highs in January 2011 when the opportunity to throw therr weignt up by 3.4 percent. It has surpassed the 2008 behind Nigerian farmers stares them in the levels that sparked a global food crisis and is face. at the .highest level since the organisation "The question therefore is who is banking started trackil1g global food prices in 1990. farmers to purchase fertilisers, machinery, The UN in its assessment of global trends livestock, enhanced seedlings, pesticides, . has said "Persistent high levels of underemherbicides and other farm inputs? ployment and vulnerable employment, as '''Who is banking the cocoa farmers at !hi.s time when there is an international shortfall . '''well as continued widespread malnourishment, will remain concerns in the near outof approximately 800,000 tonnes of cocoa look." caused by Cote d'lvoire's internal squabbles?" the report asked. FOC, however, warned that it may be too late to benefit from the current global food prices rally like Kenyan tea farmers and Ghanaian cocoa farmers have. They however raised the hope that something can still be done about the future. The company in its report maintained that stakeholders need to take strategic positi9l1S

along the value chain in order to take advantage of current and future opportunities. [t criticised the present banking model of jostling for big ticket transactions, which FOC argued has been proven to be fatilty as the risk of that transaction failing can destabilise tKe banks. "The aspect of growth fostering lending activities could be taken off the back burner and given strategic attention.

"The banking sector, the intermediary for t11e transmission of funds from the surplus spending unit to the deficit spending unit, needs to stop paying lip service to lending to ~~_ a£~_~ _~~.?~ .~~-,~~].ai,r;n its positio~; a.~ a

:-;'....

THISDAY, 13 MARCH 2011  

Food Crisis: Nigerian Banks Put on Alert

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