@TunjiAndrews analyses – FG backed loans key to power sector growth

by Tunji Andrews

Nigerians have continued to express mixed reactions to the reported N213 billion bail-out fund meant to assist companies that bought over the unbundled Power Holding Company of Nigeria (PHCN).

The N213 billion loan facility, being provided by the Central Bank of Nigeria (CBN), is expected to be repaid over a period of 10 years.

However, seeing the level of investments needed to revive the power sector, it was crucial that the federal government stepped in to facilitate and help steady a sector which is key to the success of almost every other sector within the economy.

As of today, Nigerian money Deposit Banks have committed over N320 billion as loans to DISCOs and GENCOs, while the Federal Government realised N400 billion from the sale of the assets of the defunct Power Holding Company of Nigeria (PHCN). But the lenders are worried over persistent gas shortage, which has put operators’ cash-flow in jeopardy.

The truth is that as a result of a chain of developments in the power sector, analysts said achieving the financial projections laid down between the various power companies and their banks may be a tall order.

The search for long-term capital by the banks is to support the long-term financing needs of most firms that acquired the generating and distribution companies in Nigeria. While some banks have already raised the amount of capital they need to support their clients from the Eurobond market, the rest are still weighing other available capital raising options.

For instance, Zenith Bank Plc recently sold its début $500 million dollar-denominated bond. The bank had explained that the proceeds would, among other things, enable it finance the power sector.

Similarly, Diamond Bank Plc also issued its début $200 million five-year Eurobond. The bank also plans to tap the equities market to raise about $300 million. Diamond Bank is seeking to raise $500 million additional capital.

On the other hand, while Union Bank is seeking approval to raise $750 million, Access Bank at its recently held Annual General Meeting got the approval of its shareholders to raise $1 billion.

Unfortunately however, the enthusiasm of banks to roll their resources behind the power privatisation process seemed to be diminishing by the day.

The truth is that as a result of a chain of developments in the power sector, analysts said achieving the financial projections laid down between the various power companies and their banks may be a tall order.

Today, the generating companies are complaining of a number of challenges, chief among which is lack of gas needed for the transmission. Other challenges include vandalism of gas pipeline and power assets.

The situation at the generating level is obviously taking tolls on the performance of the various distribution companies with the attendant strain on revenue generation.

It is to this effect that the FG had to pay off power generation companies,’ N25 billion debts owed gas companies for gas supplies in order to boost electricity generation in the country. Also, the FG has activated a $500 million African Development Bank (AfDB) loan aimed solely for intervention in the power sector.

The loan, to be released in $100 million tranches, was activated by the inauguration of a technical monitoring committee in Abuja. Notably, the induction of this committee was mandated by the AfDB as one of the pre-conditions for drawing on this budget support loan.

However, Mr George Iwuoha, a civil servant in Abuja said that he believed the companies should have sought for the loan from their banks. Without minding the fact that Nigerian banks were risk averse to power sector loans, he said,

“The government has no business bailing them out, rather as serious-minded entrepreneurs, they should have approached their bankers for loan.

“It should be noted that these companies held themselves out as having both the financial and technical muscle to provide Nigerians with steady power supply.

“What this means is that they must have done their feasibility study on the financial implications before delving into the project.

He described the people fronting for the distribution companies (DISCOS) as mere politicians and not experts as envisaged.

In his view, Mr Christian Nze, a Public Servant expressed concern that a problem could arise from the repayment, if not properly handled.

“There is nothing wrong in providing bail-out fund for private electricity companies from tax payers’ money, but what I think is wrong is the reported repayment method.

“However,  if the services for which the intervention fund is meant is rendered to Nigerians, we may not feel the impact of the repayment within the stipulated period.

“But if the money is squandered or ends up in the pockets of a few without any improvement in the power sector, then it will be a crime against humanity asking Nigerians to pay for services not rendered to them,’’ Nze said.

According to the Federal Government, all its efforts are meant to address the three key challenges facing the power sector.

These include inadequate gas supply for power generation, misalignment between electricity tariff and the true cost of running electricity business  and the inability of generation companies to reliably produce electricity with the reduced volumes of gas.If the modest success achieved so far in the NESI is to be sustainable, the tripod of gas availability, grid enhancement and efficient regulation will continue to be given the priority they deserve. Government is currently doing a lot to improve gas availability through the consideration now given to the settlement of legacy indebtedness to gas producers, an improved gas price and government’s approach to developing a SuperGrid and smart grid.

It is however key that Nigerians keep abreast with the issues and help support such intervention initiatives.

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