The race to acquire West Power and Gas’s (WPG) stake in Eko Distribution Company (Eko DisCo) is approaching its conclusion, as sources reveal that a deal with shortlisted bidders is imminent.
Initially, around ten companies expressed interest in the multi-million-dollar acquisition, which was later narrowed down to after a competitive bidding process. Nairametrics understands that an agreement thought to be imminent.
Our sources provided Nairametrics with details of the bidders however we have chosen to withhold their identities to avoid influencing the sensitive negotiations that are currently underway.
High-Stakes Bid in the Power Sector
This acquisition could become one of the most significant in Nigeria’s power sector, especially given the strategic importance of Eko DisCo, which serves nearly 8 million people in the Lagos South region.
- Since WPG’s acquisition of a 60% controlling stake in Eko DisCo in 2013, the company has grown into one of the most efficient power distributors in Nigeria, despite the challenges that have plagued the sector.
- WPG paid $135 million for its share during the government’s electricity privatization programme but except to receive much more from the potential sale.
This deal could signal a renewed focus on large-scale investments in power distribution, a sector that has long faced financial and operational difficulties.
A template for future deals
The Eko DisCo sale is being closely watched by industry experts, who believe the outcome could serve as a blueprint for more high-value acquisitions within Nigeria’s power distribution sector.
For years, the sector has been riddled with challenges such as inadequate infrastructure, poor revenue collection, and the need for significant capital investments to improve service delivery.
The successful conclusion of this deal could offer a pathway for similar transactions, potentially unlocking more investments and recapitalization opportunities.
- A source familiar with the bidding process noted, “This is more than just a sale; it’s a pivotal moment for the sector. The way this deal is structured and executed will likely set a precedent for future buyouts, mergers, and acquisitions. Investors are watching to see how the sector can evolve.”
One of the critical aspects of this transaction is the role that key stakeholders such as regulators and creditors will play in facilitating the deal.
The Nigerian Electricity Regulatory Commission (NERC), the Federal Competition and Consumer Protection Commission (FCCPC), and financial institutions providing credit to the power sector are all expected to play important roles in ensuring the successful consummation of the agreement.
- As one industry expert explained, “The involvement of regulators and creditors is being closely monitored. The way they facilitate the process will provide insights into how future acquisitions in the power sector might be handled. This deal could very well serve as a guide for stakeholders who are navigating similar transactions.”
NERC, in particular, will likely have a significant role to play, given its regulatory oversight of the power sector. The commission’s involvement is seen as vital in ensuring that any change in ownership complies with existing regulations and that the transaction ultimately benefits consumers.
The FCCPC, which focuses on promoting fair competition, is expected to ensure that the sale does not lead to monopolistic practices or negatively impact market dynamics.
The outcome of this sale will also serve as a barometer for the sector’s financial health, especially as power distribution companies (DisCos) across Nigeria continue to struggle with liquidity issues, tariff deficits, and operational inefficiencies.
- The performance of Eko DisCo after the sale could signal whether fresh investments and new ownership structures can drive much-needed reforms in the power distribution space.
- Industry insiders believe a successful transaction could spur more acquisitions, mergers, and even recapitalizations across the industry.
- Several DisCos, burdened by debt and operational challenges, could see this as an opportunity to explore new ownership models or attract additional capital investment.
- The anticipated buyout is expected to bring fresh energy into Eko DisCo’s operations, leading to improvements in both financial performance and service delivery.
As power companies look to expand their footprints, particularly in densely populated urban areas like Lagos, this deal could serve as a signal of renewed confidence in the sector.
Expert Insights on the Eko DisCo Sale
Energy expert Ayodele Oni provided insights into the significance of the sale, emphasizing the potential positive impact on the power sector.
According to Oni, “It is important to have good corporate governance structures, more operational efficiencies, and financing to function properly as a DisCo.
Hence, where the sale of the interest would improve the performance and financial capacity of the DisCo, it can yield positive results for the sector.” This underscores the broader benefits that could arise from the successful conclusion of the Eko DisCo sale.
What you should know
- Eko DisCo has consistently been a top performer among its peers, particularly in terms of remittances to the electricity market and reducing technical and commercial losses.
- The company recently recorded an all-time low aggregate technical, commercial, and collection (ATC&C) loss of 10.22% in the fourth quarter of 2023, one of the lowest in the Nigerian power distribution industry.
- In terms of revenue, Eko DisCo reported collections of N77.5 billion in 2023, billing a total of 3,448 GWh of energy, according to data from the National Bureau of Statistics (NBS).
- Additionally, the company’s collection efficiency stands at an impressive 85%, as per regulatory data.
