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LEGAL NOTICE NO [ ] OF 2004
PRIVATISATION ACT (APPROVED
PRIVATISATION SCHEME
FOR LESOTHO ELECTRICITY CORPORATION) NOTICE 2004
Pursuant to section 19 of the
Privatisation Act 1995[i]
, I,
MOTHUSI MASHOLOGU
Director of Privatisation
make the following notice:
The Public
Service Concession Scheme for the Lesotho Electricity Corporation specified
in the Schedule has been approved by Cabinet.
SCHEDULE PUBLIC
SERVICE CONCESSION SCHEME
FOR LESOTHO ELECTRICITY CORPORATION A.
CORPORATION PROFILE
1. LEC is a
corporate body established pursuant to the Electricity Act No. 7 of 1969
(‘Electricity Act’). LEC is 100% owned by the Government of Lesotho (‘GoL’).
The Ministry of Natural Resources (‘MoNR’) is the Line Ministry that
exercises oversight of the affairs of LEC. LEC carries out business
throughout Lesotho and has its head office at 53 Moshoeshoe Road, Maseru
West.
2. The Electricity Act grants LEC the powers and rights to carry out
functions relating to the supply of electricity to customers in Lesotho.
This Act, as amended, still provides the legal basis for the supply of
electricity in Lesotho. LEC has the sole responsibility for the supply of
electricity, and has the right to undertake all tasks related to the
generation, transmission, distribution and supply of electricity.
3. The total electricity demand
in Lesotho is met through purchases from ‘Muela Hydropower Station (owned by
the Lesotho Highlands Development Authority (‘LHDA’)) (72 MW), with the
remaining demand in peak periods (approximately 18 MW) being met by
purchases from Eskom in South Africa. Lesotho is an operating member of the
Southern Africa Power Pool (‘SAPP’). Electricity is being supplied to
end-users by LEC through a system of transmission and distribution lines
operating at various voltages of 132 kV or lower. In the mountainous eastern
areas of the country, electricity is supplied either by one of four
mini-hydro plants with diesel-powered back ups also operated by LEC, or by
separate 22kV interconnectors to the South African grid. These power system
assets account for more than 90% of the total LEC immovable assets, with
buildings and land being the main component of the remainder. LEC had 41,843
customers as at end-January 2004.
4. LEC is
controlled through a Board of Directors constituted in accordance with
provisions of the Electricity Act. A consulting company was appointed by GoL
in February 2001 to act as a management contractor at LEC. LEC has 459
members of staff including both professional and support staff, with 21
unfilled vacancies. The recent financial performance of LEC is summarised in
the following statements:
Summary
Profit and Loss Statement (year ended 31st March)
Summary
Balance Sheet (year ended 31st March)
Source: LEC
Financial Statements
B.
RESTRUCTURING STRATEGY
1. Despite a 48% increase in connections in the last three years,
electricity is still available to less than 10% of the households in
Lesotho. GoL has therefore made improving access to electricity its highest
priority for the sector. LEC will play a major role in achieving this. The
ultimate objective of the restructuring of LEC is to bring about
improvements in access, efficiency and customer service. There is an urgent
need to improve performance to allow LEC to become the driving force for
achieving the GoL’s connection targets. GoL also is in the process of
establishing the Lesotho Electricity Authority (‘LEA’) to regulate the
sector.
2. The preferred method of restructuring LEC is the Public Service
Concession (‘PSC’) approach, which has been approved by GoL. This approach
ensures that GoL retains long term control over electricity assets while
achieving the benefits of private sector investment and expertise in LEC.
The main features of the PSC approach are: A permanent concession to provide
electricity services within a defined Service Territory; a majority stake
would be sold to a strategic partner through a competitive tender for a
fixed period; and the shares would be re-tendered periodically going to the
highest bidder.
3. The PSC
approach will entail the restructuring of LEC into a new successor company,
Lesotho Electricity Company (Pty) Ltd (‘LEC (Pty)’), which will be
incorporated under the Lesotho Companies Act No. 25 of 1967 (‘Companies
Act’). LEC’s business, including its assets, liabilities, rights,
obligations and employees, will be transferred to LEC (Pty) via an
Establishment and Vesting Act. The transmission assets currently owned by
LHDA will continue to be operated by the new company. LEC (Pty) will be
given clear title to its land and buildings and clear rights of way to
operate and maintain its transmission and distribution infrastructure. LEC
(Pty) will be granted a PSC by the PU which will set out its exclusive
Service Territory, specify electrification connections and provide for
quality of supply and service targets. The LEA will grant LEC (Pty) separate
licences for transmission/despatch and distribution/supply. It is
anticipated that it will not be necessary to separately licence the
generating assets to be owned by LEC (Pty) because they will fall below the
minimum output for licensing purposes. The National Control Centre (‘NCC’)
will be operated by LEC (Pty) to enable it to carry out scheduling,
dispatch, import, export and planning activities. 4. The key components of the PSC transaction are summarised as follows:
·
70% of LEC (Pty)
shares offered to investors at a fixed price;
·
30% of LEC (Pty) shares
retained by GoL for possible future divestiture to local investors and
employees;
·
investors bid a 10
year rollout plan for new connections, in line with the GoL’s priority
objective, GoL and investor to agree rollout plan for the subsequent 10
years;
·
the initial PSC will
be for 20 years, subsequent concessions will last for at least 15 years;
·
financial
restructuring of LEC’s balance sheet, which will involve the conversion to
equity of some of its liabilities to GoL;
·
bidders will have the
option of obtaining a Partial Risk Guarantee from the World Bank/IDA, which
would cover them against political and regulatory risk; and
·
the implementation of
the approved Transitional Tariff Plan (‘Tariff Plan’) (see below).
5. The PSC approach will have a number of safeguards built into it to
ensure that LEC (Pty) cannot dispose of a material part of its assets
without the agreement of the GoL. The Share Transfer Agreement will include
a provision giving the GoL a right of veto over asset disposals above a
specified percentage, and the Articles of Association of the company will
reinforce this provision.
6. Up until the end of 2003, electricity tariffs in Lesotho remained
unchanged for 10 years. Inflation has therefore significantly eroded their
real value. GoL has therefore accepted that tariff reform is fundamental to
the success of the electricity reforms. Target tariff levels that aim to
encourage LEC (Pty) to improve efficiency have been determined based on a
study for the GoL by consultants. A three-year transition path to the target
levels has been adopted. This balances the competing objectives of
minimising the financial impact on domestic consumers and minimising the
(implicit) subsidy required for as long as tariffs are below the target
levels. Key features of the Tariff Plan are as follows:
·
initial increase of 18% for all domestic and
general purpose consumers (effected on 1 January 2004);
·
subsequent increases to take place on 1st
January 2005 and 2006;
·
rebalancing of energy and demand components for
commercial and industrial customers.
After the Transition Period retail tariffs will be regulated by the LEA in
line with the PSC.
7. LEC’s
Service Territory will be defined on a geographical basis (a buffer zone
either side of its existing distribution network) and will include urban
centres, towns and villages that are interconnected to existing transmission
bulk supply points. It will be reviewed every five years by the LEA,
according to clear, predetermined principles. Within the Service Territory
LEC (Pty) will have a permanent exclusive right to construct, expand,
modify, maintain and operate the transmission and distribution network,
connect customers and retail electricity to them. As the Service Territory
expands and meets other suppliers who have set up under the rural
electrification program (see below), the rights of the existing suppliers
will be maintained. Within the Service Territory LEC (Pty) will have an
obligation to provide a connection to anyone who requests it and who can pay
the fee, in accordance with its connection fee policy as approved by the
LEA. Outside the Service Territory LEC (Pty) will be allowed to apply for
any subsidy available from the National Rural Electrification Fund (‘NREF’)
under the rural electrification program (see below).
8. Rural Electrification
(RE) is a key component of the GoL’s strategy for increasing access to
electricity. Certain aspects of the policy will affect the privatisation of
LEC. In this regard, it has been agreed that MoNR will continue to be
responsible for policy formulation and implementation of RE projects, and
LEA for regulating the sector. The NREF will be established as a universal
access development fund, with funding (e.g. from GoL and donor sources)
allocated to those projects that provide the lowest cost connections.
C. MEASURES TO BE TAKEN TO
IMPLEMENT THE RESTRUCTURING STRATEGY
1. Implementation of the proposed PSC strategy will include the
following key steps:
(i) Preparation of legal and
institutional framework for restructuring:
(a)
Publication of Privatisation Scheme Notice in the Government Gazette and at
least one local newspaper
(b)
Incorporation of LEC (Pty) under the Companies Act
(c)
Preparation of LEC (Pty) Establishment and Vesting Act
(d)
Promulgation and passing of LEC (Pty) Establishment and Vesting Act
(e)
Preparation of LEA (Amendment) Act
(f)
Promulgation and passing of LEA (Amendment) Act
(g)
Granting of PSC to LEC (Pty) by Privatisation Unit
(h)
Commencement of remaining sections of LEA Act 2002
(i)
Establishment of LEA (by appointment of Board and Chief Executive Officer)
(j)
Drafting of LEA Regulations
(k)
Promulgation of LEA Regulations
(l)
Preparation of licences for LEC (Pty) and other suppliers
(m)
Issue of
licences to LEC (Pty) and other suppliers
(n)
Repeal of Electricity Act and subsidiary regulations.
(ii)
Preparation of LEC for restructuring
(a)
Implementation of Tariff Plan
(b)
Finalisation of arrangements for operation of LHDA transmission assets
(c)
Finalisation of arrangements for operation of NCC assets
(d)
Issue of leases for all land assets to LEC (Pty)
(e)
Clarification of Wayleaves & Easements
(f)
Resolution of LEC tax issues
(g)
Reconciliation of all debtors and creditors balanced
(h)
Financial restructuring of LEC entailing the conversion of balance sheet
items to equity (as above)
(i)
Finalisation of 'Muela Power Purchase Agreement with LHDA
(j)
Finalisation of Power Purchase Agreement with Eskom
(iii) Implementation of the restructuring transaction
(a)
Provisional application for Partial Risk Guarantee/MIGA Guarantee
(b)
Preparation of information memorandum, bidding package and marketing
materials
(c)
Advertisements placed in local and international newspapers seeking
expressions of interest to participate in the privatisation process;
(d)
Processing of all enquiries and requests for information.
(e)
Shortlist of pre-qualified parties
(f)
Issue letter of invitation and bidding package to the short-listed parties
(g)
Permit due diligence of LEC (Pty) by potential bidders (to the extent
necessary)
(h)
Receive and evaluate bids
(i)
Select preferred bidder
(j)
Negotiate and finalise transaction documentation
(k)
Approval
by Cabinet of potential purchaser
(l)
Fulfillment of conditions precedent
(m)
Implementation of transaction documents (receipt of purchase price, transfer
of ownership)
2. It is expected that the legislative framework necessary to establish
LEC (Pty) will be completed by end-July 2004, and that the transaction will
be completed towards the end of 2004. D.
APPLICATIONS AND SHORT LISTING
(i)
experience in rural development of infrastructure;
(ii)
experience in managing an electricity utility
(iii)
experience in managing a supply utility (water, gas, electricity)
(iv)
experience in managing an infrastructure business (wires or pipes)
(v)
experience of working in the Africa region
(vi)
audited financial statements of the last three years
(vii)
full details of consortium members, if applicable, including statements from
each that the lead member is authorised to act on their behalf
(viii)
a
statement that there are no conflicts of interest
Expressions of interest, including
full contact details of the firm’s project manager, must be submitted by no
later than 12.00hrs. Lesotho time on Monday 3rd May 2004 at the
following address:
The Director
Privatisation Unit
2nd Floor
Lesotho Bank
Mortgage Building
Private Bag A 249 Maseru -100
Fax: + 266 2231 7551
E
mail:
director@privatisation.gov.ls
(Submissions up to 0.5MB will be accepted by e-mail; firms should request an
acknowledgement of receipt)
DATED:
[ ]
MOTHUSI T. MASHOLOGU
DIRECTOR OF THE PRIVATISATION UNIT
–––––––––– N O T E
LEGAL NOTICE NO. [
] OF 2004
PRIVATISATION ACT (PRIVATISATION METHOD) NOTICE, 2004
Pursuant to
section 9 (1)(i) of the Privatisation Act 1995[i],
I,
MOTHUSI
MASHOLOGU
Director of
Privatisation make the following notice:
The Public
Service concession method shall be the method by which the Privatisation
Unit, with the approval of the Minister, may privatise the Lesotho
Electricity Corporation.
DATED:––––––––––––––––––––
MOTHUSI MASHOLOGU
DIRECTOR OF PRIVATISATION UNIT
–––––––––– N O T E [i]. Act No.9 of 1995 31 March 2004 |
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