Understanding the Divestment of Shares in Energy Fiji Limited
Last Friday, Government announced that it had entered into an agreement to divest 20 per cent of the shares in Energy Fiji Limited (EFL) to the Fiji National Provident Fund (FNPF). The consideration price was estimated at $220 million.
The completion of the transaction, including the finalisation of the exact buying price, will take place following the satisfaction of certain preconditions that have been agreed upon by Government, Energy Fiji and the Fund.
As is typical for large-scale transactions of this nature, bidding prices for Energy Fiji’s divestment were based on future business projections.
Under the terms of the agreement with the Fund, the final buying price will be subject to adjustment based on the implementation
of new legislation, potential electricity tariff changes, and Government commitments to continue subsidising Energy Fiji’s non-commercial obligations.
As part of the reform of Fiji’s energy sector, the impending implementation of the Electricity Act 2017 will transfer regulatory functions that were previously performed by EFL to the Fijian Competition and Consumer Commission (FCCC). FCCC will then issue EFL with a bulk generation license, and establish the company as Fiji’s exclusive electricity retailer, transmitter and distributor.
The final purchase price is also conditional on the outcome of EFL’s recent submission to FCCC requesting adjustments to current tariff rates. Any proposed changes to the current tariff scheme cannot be pre-empted, as the process is independent of Government, EFL, and FNPF.
As part of the sale, Government has assured that its support for EFL customers –– particularly those living in remote, isolated areas that are not commercially viable –– will continue, including existing subsidies and financial support for EFL’s non-commercial obligations. Any losses associated with non-commercial obligations above the 2018 level will be recovered by EFL from Government. Following the divestment, the Government retains 75 per cent of the shares in EFL, with the remaining shares held by FNPF (20 per cent) and the general public of Fiji (five per cent).
It is anticipated that the divestment of a further 24 per cent equity in EFL will be undertaken as part of the next phase of the divestment process once the regulatory changes have taken force. With FNPF’s 20 per cent ownership stake, it will be entitled to nominate one director to EFL’s Board of Directors.