Thursday, August 18, 2016

The improvement in electricity supply in recent times may be short-lived. This has nothing to do with low generation output when the rains stop or the vandalised gas pipelines, which have not been fixed. Rather it is the huge debt burden weighing down the generation companies.

The Guardian learnt that First Bank of Nigeria Holdings Plc; Zenith Bank Plc; United Bank for Africa Plc (UBA); Guaranty Trust Bank Plc (GTBank); Access Bank Plc; Diamond Bank Plc; Fidelity Bank Plc; and Skye Bank Plc collectively gave out loans worth N402 billion to electricity plants.

According to the first quarter Statistical Bulletin of the Central Bank of Nigeria (CBN), credit to electricity and energy have been rising exponentially, of which independent power plants and power generation companies (Gencos) owed N340 billion in December 2015, N357 billion in February 2016, and N357 billion in March 2016.

Also owing are transmission and distribution companies (Discos) (N162 billion in December 2015, N162 billion in February and N162 billion in March 2016 respectively). As a result, the exposure of the banking sector to energy firms as at year-end, increased to N358 billion. Oil Producers' Trade Section (OPTS), under the Lagos Chamber of Commerce and Industry (Lagos Chamber of Commerce and Industry (Lagos Chamber of Commerce and Industry (LCCI))), said that the power sector invoice arrears, which were N40 billion in 2015, have now reached N100 billion.

It was learnt that the electricity firms were already facing difficulties in servicing the over N402 billion loans, which they collectively took to purchase the plants when they were privatised in 2013. This is because when the power generating companies took loans from local and international banks to acquire the electricity plants, the foreign exchange (forex) rate was about N157 to $1. They are now finding it difficult to pay back as the rate has risen to over N320 to $1.

For example, the Africa Finance Corporation (AFC) provided a $170 million debt financing facility, in conjunction with GTBank, to the Mainstream Energy Solutions Limited (MESL) consortium for the acquisition of the Kainji Power Plc.

To underscore their financial handicap, the Gencos are threatening to shut down their power plants if the N156 billion owed by government agencies is not paid. Specifically, the Nigerian Bulk Electricity Trading (NBET) Plcowes Egbin Power Plc N68.71billion; Transcorp Ughelli Power Limited – N28.29 billion; Shiroro Power Station – N9.66 billion; Geregu Power Plc – N7.98 billion; Kainji/Jebba power stations – N20.94 billion; and Sapele Power Plc – N9.9 billion.

To grant the power operators some reprieve, the Central Bank of Nigeria (CBN) designed a N213 billion bailout package to cover revenue shortfalls and help the companies meet debt-service obligations on bank loans.

The CBN said it disbursed a total of N120.2 billion to different electricity distribution companies (Discos), power generating companies (Gencos), service providers and gas companies. But the Gencos say they are no longer interested in the bailout fund. "We are only interested in funds owed to us for power already generated," they said in a statement.

The Guardian learnt that Egbin Power Plc, which is owned by the Sahara Energy consortium, is owed over N44 billion. Already, the company has slowed down on plans to build 1,000mw power plants due to the shortage of gas and scarcity of foreign exchange.

A source in the company told The Guardian that with the high forex rate, the cost of yearly maintenance has also doubled."What this means is that we will be paying two times that amount for maintenance alone."

The Chairman, Egbin Power Plc, Kola Adesina, said that dollar scarcity was one of the critical challenges in the country's power sector."At the point of acquiring these power assets, the exchange rate was N155.76 to a dollar, which has since doubled and not even readily available to those of us that work in this sector. Our plant is largely run with offshore equipment, spares and tools and these spares can only be procured in dollars. Invariably, there is a need for a special allocation, if we are to get the entire mix right. Otherwise, the tariff structure will not be affordable to be able to assist in the industrialisation vision of the administration," Adesina said.

He noted that the huge debts owed generation companies have put them in a cash liquidity crisis that has reduced their ability to pay for gas supplies, and hence threatens to completely undermine the electricity value chain and ability to continue to serve customers.