Published On: Wed, Nov 20th, 2019

How we solely acquired AEDC – CEC Africa

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By Etuka Sunday
CEC Africa Investments Limited yesterday disclosed how it solely paid the sum of $81million cash, raised $123million loan security to acquire Abuja Electricity Distribution Company (AEDC).
The Company was responding to reports making the rounds in the Nigerian media sphere regarding shareholders’ dispute at KANN Utility Company Limited (KANN), the majority shareholder of the AEDC.
A statement signed by the the Managing Director/ Chief Executive Officer, CECA, Engr. Emmanuel Katepa said, the clarification was necessary in order to set the records straight for the benefit of the public and stakeholders of the Nigerian Electricity Supply Industry (NESI).

“We are greatly concerned about some of the issues raised in the media. We will like to be clear that we do not wish to contend any matter that is currently the subject of legal proceedings. We are only addressing the specific issues raised in the various media reports to set the records straight for the benefit of the public and stakeholders of the Nigerian Electricity Supply Industry (NESI),” he said.

Katepa noted that “KANN’s two shareholders viz CEC Africa Investments Limited, which has over 60 years history of power operations across several southern African countries and Xerxes Global Investments Limited agreed to jointly bid for the purchase of 60% equity stake in AEDC between 2012 and 2013.

“Both firms executed a Joint Development Agreement dated 31st July 2012 to incorporate and become shareholders of KANN in the acquisition of the 60 percent shareholding of AEDC. The Chairman of CECA is Mr. Siyanga Malumo and the Chairman of Xerxes is Ambassador Shehu Malami.

“Ultimately it was agreed that both CECA and Xerxes would own and hold 50% each of the shares of KANN and that each of the two parties would make equal financial contribution towards the acquisition amount and costs with regard to the purchase of 60% shares of AEDC.

“The purchase price of AEDC was $164 million and it was agreed by XerXes and CECA that this would be funded 25 percent ($41 million) by cash contributions from Xerxes and CECA (in their 50%/50% shareholding interest) and KANN would borrow the remaining 75% of the acquisition costs ($123 million) from a third party lender (which ended up being the United Bank for Africa (UBA).

“When the initial 25% ($41 million) was demanded by the Bureau of Public Enterprises as an upfront payment, Xerxes could not raise its equity contribution, leaving CECA to wholly fund the initial 25% equity payment. 

“CECA paid for that portion of the acquisition amount in full being $41 million in March 2013. XerXes did not fund any of this equity payment.

 “By August 2013, the 75% balance payment of $123 million (to be funded through a loan from UBA) was due but Xerxes could still not guarantee the equity loan repayment at the UBA. 

“Because of this, CECA provided a mandatory Debt Service Reserve Account of $40 million as a security cover for the UBA loan. At this point, CECA had funded $41 million paid directly to the BPE and an additional $40 million for the UBA Debt Service Reserve Account.

 “The $40 million was utilized for the payments to UBA and, accordingly, CECA funded $81million. XerXes did not fund any part of these payments. To secure this repayment XerXes pledged 25% out of its 50% shareholding in KANN to CECA. 

“This pledge was with the agreement of Xerxes enforced just before the conclusion of the acquisition which resulted in CECA becoming owner of 75% of the shares of KANN whilst XerXes shareholding reduced to 25%. 

“Xerxes was given the opportunity to re-acquire the 25% shares if it was able to raise its own share of the funds by January 2014. XerXes failed to raise the said funds,” the statement said.

Katepa said, “during the privatization, KANN had to scale two guarantee hurdles. The first was the guarantee for the loan which for AEDC was for the 75 percent UBA loan the investors took. The other is the Performance Guarantee with BPE signifying the takeover of the DisCo.

“CECA which was meant to be the co-investor, however continued to play the role of the core investor as XERXES could not and left the payment and security responsibilities to CECA. To complete the DisCo purchase transaction, CECA solely provided the Performance Guarantee with BPE and provided the UBA loan guarantee earlier stated. It was not until December 2015 that Xerxes insisted that it must be joined in the UBA loan guarantee.

“The Parent Company Performance Agreement that CECA solely provided was on behalf of KANN Utility to acquire AEDC. It was submitted to the BPE on August 21, 2013, the same week slated by BPE for the initial 75 percent payment for the DisCo acquisition. It is a legal agreement conferring ownership of the DisCo on the investors.

“The shareholders’ disagreement started in 2013 when CECA wanted to enforce the rights of CECA as the major and core investor in AEDC, having paid all the acquisition fees, and provided security covers for the UBA acquisition loan. Xerxes disagreed with CECA on this view and the parties went for arbitration of the matter at the London Court of International Arbitration (LCIA). The result of this was that the court made an Arbitral award dated 28th October 2016 in favour of CECA Limited, having provided all the financing documents with BPE and the financing bank.

“With this, CECA approached a Federal High Court sitting in Abuja in October 2016 for the recognition and enforcement of the London Arbitral award. By February 2018, CECA won the case at the Federal High Court. However, not satisfied with these proceedings, Xerxes appealed the case to the Court of Appeal in March 2018.

“With these unresolved issues, CECA felt there was need for the shareholders of KANN Utility to hold its annual meeting which was between CECA and Xerxes to discuss how to forge ahead. We (CECA) sent the Notices of Requisition dated 18 April 2018 to the Board of Directors of KANN to convene a meeting of the shareholders of KANN.

“However, Xerxes said it has already appealed the rulings of the London Arbitration Court and the judgement delivered by a Federal High Court in Abuja, recognising CECA as the owner of 75 percent of the shares in KANN. XerXes said the Extraordinary General Meeting will not hold because it was not in its interest. Since 2017, through 2018 when it appealed the matter and in 2019, the meeting did not hold.

 “Xerxes has therefore rendered it impracticable for statutory meetings of the company to hold and as a responsible majority equity holder, CECA continued through its representatives in KANN and AEDC to cooperate with and work with the Board of AEDC in taking crucial investment decisions about the expansion drive and the vision of AEDC.

 “It is CEC Africa’s firm belief that the running of AEDC and the need to give quality electricity supply to customers in the public interest cannot be stopped because of a shareholder who has failed to meet its funding obligations and yet wants to hold on to equity which it has failed to pay for.

“On our part, we remain resolute and committed to the reforms at AEDC. Initially after the takeover, the parties agreed that of the top eight management positions, four will go to CECA (expatriates) and four will be local partners.

“However, Xerxes could not produce its four local officials and the consortium had to hire Nigerians later for these positions that include the legal and government relations, but they were Nigerians and so it did not breach the relevant agreement.

“In 2018 when the Nigerian Electricity Regulatory Commission (NERC) produced the local content regulation, it mandated that only five percent of management positions of power firms must be for expatriates, the 95 percent must be for the locals. The operators of AEDC looked at the number of over 200 management positions among the over 3,000 staff strength and found that the just eight expatriate officials are within the five percent limit of NERC.

“There is long term plan to gradually reduce the number of expatriates running the Disco. For instance, in February 2017, Ije Ikoku, a Nigerian was appointed to replace the Chief Finance Officer (an expatriate). In 2016, when the contract of an expatriate Technical Director expired, he was replaced by a Nigerian. We are still committed to that plan.

“CECA is of the view that XerXes does not have best industry knowledge to effectively manage the DisCo. While CECA personnel have managed power utilities for decades, Xerxes has no record of that and Nigeria is just in the sixth year of private power sector operation. We believe that there should be a mix of few experienced expatriates until when the sector is robust.

“Currently, the crop of expatriates is changing the company’s operation to embrace advancements and the local management staff would need to be carried along by the expatriates who have the experience. This is why AEDC is ahead in the Meter Assets Provider (MAP) and had installed over 70 percent meters of the total installation by all the DisCos since MAP commenced this year. We have another breakthrough which is the Integrated Commercial and Management System (INCMS) and we are the first DisCo in Nigeria to have that.

“That customer and management interface technology is already being considered by the Central Bank of Nigeria (CBN) and NERC as a model for the rest of the power industry. It is because the company has the infusion of people who learnt this thing from elsewhere and are introducing it in Nigeria to enhance customer service experience.

“As I conclude, I must state this: Globally, operators who want the best for their company must look beyond unqualified allies but transparently seek for the most competent persons through competitive recruitment and procurement processes,” Katepa said.

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