Money Depoait 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. To address the issue, the Bankers’ Committee has unveiled plans to pay the N25 billion PHCN debts. COLLINS NWEZE reports that this may bring reprieve to the banks.
The plans by the Bankers’ Committee to pay the N25 billion PHCN legacy debt has opened a new vista of hope in the funding of the power sector. The lenders decided last month at their meeting in Lagos, that leaving the gas supplying firms bogged down with the debt, will make nonsense of the huge funds already committed to the power projects.
Hence, the Bankers Committee opted to pay the debt until such a time that the power companies will attain maturity and make repayments on agreed terms.
The measure will boost gas supply and enable the lenders wriggle out of the rising non-performing loans granted power firms.
Findings showed that many of the banks that raised the capital to fund the power projects are counting their losses because of poor cash flow due to gas shortage. The lenders, it was learnt, are being more cautious in lending to the power sector until the gas challenge is resolved. A quick resolution is expected to revive the attractiveness of the sector to the lenders and create room for fresh loans.
The Managing Director, Ecobank Nigeria, Jibril Aku, said the committee resolved to service the debt, admitting that doing so would enhance gas supply and boost power output in the country. Aku said the banks will recover the fund from the Multi-Year Tariff Order (MYTO) deductions.
He said the Bankers’ Committee is willing to support the initiative with government, where a Special Purpose Vehicle (SPV) will be set up to provide loans to clear the debt, and overtime, the loan would be recovered through MYTO tariff deduction.
The Ecobank chief said the essence of the power transformation programme is to achieve efficiency and improve power supply, which was constrained by gas shortage.
He said: “Obviously, gas coming into the power stations would affect the revenue. Many of the operators have not raised their production capacity because of shortage of gas.”
According to him, the gas companies have always been agitating that this debt be paid, otherwise, they will not produce and will begin to accumulate new debts.
He said the committee believes that most of the problems associated with gas-to-power would be resolved and Nigeria will begin to see a generating company that is inspired to increase power generation.
In line with its Vision 2020, which seeks to place the country among the 20 leading economies in the world, the government has set a rather ambitious target of 40,000 Megawatts (Mw) of electricity generation.
With a population surpassing over 170 million, its current maximum electricity generation capacity is approximately 4,500 Mw. This is inadequate to meet demand estimated at 10,000Mw.
The World Bank and other local and international lenders have equally showed renewed commitment to power sector funding in Nigeria.
President/CEO, African Finance Corporation (AFC),Andrew Alli, said sub-Saharan Africa would need more than $300 billion in investment to achieve universal access to electricity by 2030. The governments of Nigeria, Ethiopia, Ghana, Kenya, Liberia and Tanzania are in the “Power Africa Countries” initiative where the investments are expected.
In a statement on the lender’s website, the AFC chief said the bank will provide additional investments in energy projects annually, far in excess of its commitment to the Power Africa initiative.
“AFC aims to provide Power Africa Countries, not only access to finance, but deal structuring and sector technical expertise, advisory services, project development, capacity funding to bridge the power infrastructure investment, seen as acritical pillars for economic growth across Africa,” the statement said.
The AFC, recently participated in the US Presidential Power Africa Initiative meant to accelerate investment in Africa’s power sector over the next five years.
The key goal of the Power Africa Initiative is to increase access to clean, geothermal, hydro, wind and solar energy. It will help African countries develop newly-discovered resources responsibly, build out power generation and transmission, and expand the reach of mini-grid and off-grid solutions, by providing the capacity and resources to generate an additional 10,000Mw of power.
The Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iwaela said the World Bank Group has pledged to provide $1.4 billion to Nigeria in support of efforts aimed at improving power infrastructure.
The minister said the global lender is planning to set up an infrastructure facility and that Nigeria would be among the first set of countries to benefit from it, given the nation’s large size and the scope of its infrastructure needs.
“They (the World Bank) want to concentrate on power, and are already actively working with several private sector companies that want to invest in Nigeria. They are promising to give Nigeria about $700 million under the International Bank for Reconstruction and Development (IBRD) guarantees for the power sector, as well as a willingness to invest another $700 million to support transmission,” she said.
She explained that the power infrastructure support finance was derived from the initiative of the World Bank Group and its affiliate, the International Finance Corporation (IFC) which listed Nigeria as one of the focused countries in sub-Saharan Africa to benefit from the funding.
She said government was prepared to execute and implement the negotiated projects, allaying fears that they might be abandoned midway and become white elephant projects. The World Bank Group hardly participates in any white elephant project, she said, adding that it has its teams that “normally come every six months to supervise what is going on, and when they see (that) the project is not performing well, they stop disbursing, cancel it and take the money elsewhere”.
Also, the Board of Directors of the African Development Bank Group (AfDB) has approved an African Development Fund (ADF) Partial Risk Guarantee (PRG) programme of $184.2 million to support Nigeria’s power sector privatisation. It also provided an ADF loan of $3.1 million, for capacity building for the country.
The Director, AfDB’s Energy, Environment and Climate Change Department, Alex Rugamba, said the PRG programme in the country would increase its electricity generation by catalysing private sector investment and commercial financing in the power sector through the provision of PRGs.
He said: “The PRGs will mitigate the risk of the Nigeria Bulk Electricity Trading Plc (NBET), a Federal Government of Nigeria entity established to purchase electricity from independent power producers (IPPs), not fulfilling its contractual obligations under its power purchase agreements with eligible IPPs. This in turn will increase the comfort level of private sector financiers and commercial lenders investing in the Nigerian power sector privatisation programme.”
Rugamba said an effective and steady power supply is critical to the sustainability of the country’s development. He said the ‘Board’s decision today will allow the AfDB to support the Nigerian government’s efforts to reform the power sector and position the country for sustainable and inclusive growth.’
Again, there was another $350 million infrastructure financing agreement for Africa between global infrastructure giant, General Electric (GE) and Standard Bank. The bank said the partnership seeks to provide affordable access to power infrastructure to augment traditional large scale grid capacity development. The bank said the partnership will target Nigeria, Angola, Tanzania, South Africa and Ghana. Others are Kenya, Mozambique, Uganda, Ethiopia and South Sudan. Financing activity will center on project finance, equipment finance, trade finance and advisory.
Speaking during a ceremony to announce the partnership, President and CEO of GE Africa Jay Ireland said the partnership comes at the right time when there are concerted efforts to boost access to energy across the continent. He said partnerships of this nature would certainly support efforts by respective governments in finding captive power solutions to meet the growing demand for alternative fuels.
Mr Ireland said the partnership is in line with the country-to-company agreements, which GE has signed with a number of African governments aimed at generating incremental power and increasing access.
Chief Executive, Stanbic IBTC Holdings (Standard Bank trades in Nigeria as Stanbic IBTC Holdings), Mrs Sola David-Borha, said the bank was committed to partnerships of this nature that help energise the sector.
She said the power challenges identified in the focus countries for this partnership were opportunities for growth through sustainable investment. According to her, through the partnership, financing will also be available for off-grid solutions that rely on cleaner fuels such as biomass and biogas across sub-Saharan Africa.
Another international lender, Ecobank Nigeria said it will invest $25 billion in five years to help solve Nigeria’s power sector crisis.
Its Country Head, Power & Energy, Olufunke Jones said the investment is in line with its policy to support the growth and development of the power sector in the country.
She said it has played a major role on the buy-side of the power sector privatisation exercise by providing financial advisory services, lead arranger role, acquisition financing and guarantees to Distribution Companies (DISCOs) , Generating Companies (GENCOs) and National Integrated Power Plants (NIPP).
She said:”Nigeria has one of the largest gaps between demand and supply for electricity. To bridge this gap, the country requires a combination of favorable government policies, private sector participation and Foreign Direct Investment (FDI) as well as transparency and persistent monitoring that will guarantee an improved business environment.”
According to her, the current power sector reforms have created opportunities for Capital Expenditure (CAPEX) and Operating Expenditure (OPEX) funding which is a consequence of the handover to the new owners. “There is the urgent need to rehabilitate the distribution networks in order to make them robust and flexible enough to accommodate the nation’s demand for power,” she said.
Also commenting, its Local Account Manager, Corporate Banking Group, Mrs. Funmilola Ogunmekan said the power sector is faced with the challenges of upgrading most of its obsolete equipment and processes under a traditional technology framework. This, among others, is the immediate challenge before the potential of the industry is fully manifested.
Mrs. Ogunmekan reiterated that this year, the lender will leverage its position as a bank with the third largest branch network to provide effective utility collections and cash management services while providing the required additional CAPEX/OPEX funding requirement for at least five of the DISCOs across the country.
Also, the United Bank for Africa (UBA) said it has so far extended $700 million (about N113 billion), in funding to different investors towards the acquisition of power assets in the privatised power sector. Its Group Managing Director and Chief Executive Officer, Phillips Oduoza said: “It is a growth sector we are playing very big.”
Zenith Bank said it expects to increase loans to the privatised power companies. The lender said loans to the power sector may rise to 10 per cent of its loan book by year-end.
The value of the lender’s loans to power companies was about N40 billion in the third quarter after the handovers.
It gave loans to power firms such as Eko Electricity Distribution Company and Ikeja Electricity Distribution Company both in Lagos State. “As we review the companies and we see viable propositions, yes we will” expand loans to the industry,” the lender affirmed.
