Electricity market concerns following $ 5 billion bank loan to DisCos

Through Adewale Sanyaolu

The seems to be a palpable fear among the 10 Electricity Distribution Companies (Discos) about what will become of their fate in the coming weeks.

The development may be no stranger to the takeover of Abuja Electricity Distribution Company (AEDC) last week for failing to meet its loan obligation to its lender, United Bank for Africa (UBA), leading to the firm takeover of the company by the latter.

Sources familiar with nightclub operations confidently told the Daily Sun that UBA’s action has already created panic in the electricity sector as the management of the majority of underperforming nightclubs is now in the limelight. crossroads.

Electricity distribution companies are expected to repay N35.06 billion of the loan disbursed under the Central Bank of Nigeria (CBN) -Nigeria Electricity Market Stabilization Facility in 2020, but have not been able to cover a quarter. reimbursement.

The privatization of electric assets brought in about $ 3.2 billion to the federal government, with Gencos and Discos being sold for $ 1.7 billion and $ 1.5 billion respectively.

The assets were purchased with high leverage, estimated at 70 percent debt and 30 percent equity, with most of the debt provided by local banks.

Less than a year after the privatization, analysts at CSL Stockbrokers Limited, a subsidiary of FCMB Group Plc, said there had been general concerns about the impact that tensions in the sector would have on the banking sector. Nigerian, with local banks having invested over 750 billion naira ($ 5 billion) in it. They said in an August 5, 2014 report that the industry was not performing as expected, causing significant variations in the cash flow and profit forecasts of successor companies’ business plans as well as the financial model of the Bureau of Enterprises. (BPE), which proceeded with the privatization.

“Many banks would have taken secondary (or primary) guarantees unrelated to power. But even with recourse, in the event of default, the banks will record a non-performing loan and there are costs involved in enforcing the claim against the assets, ”they added.

For its part, the Central Bank of Nigeria (CBN) said it had spent more than 1.5 trillion naira over the past seven years to prevent the country’s power sector from collapsing.

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Interventions include the Electricity and Aviation Intervention Fund (PAIF), hovering at around 300 billion naira, the Nigerian Electricity Market Stabilization Facility (NEMSF) at around 213 billion naira, the N 140 billion naira solar connection intervention facility, more than N 600 billion tariff deficit intervention as well as a recent N120 billion interventions designed for mass metering among others.

The CBN had, in its economic report for the fourth quarter (Q4 2020), detailed the interventions, which showed dismal repayments. The main objectives of the intervention were to speed up electric power projects, especially in the country’s industrial clusters, thereby improving electricity supply, job creation and living standards, while providing a leverage for additional private sector investment.

Interventions in the face of the financial crisis were also made necessary by the inability of the sector to finance itself as the tariff deficit, regulatory gaps and acute infrastructure hamper the growth of the industry.

Former Nigerian Electricity Regulatory Commission (NERC) chairman Sam Amadi, who said the intervention remained critical, noted that the commission remained critical to the success of the financial intervention.

“We don’t hear about all the funds from the regulator and that’s worrying. It is the regulator who should talk about financing the sector because he has the capacity to regulate spending and ensure that it goes to what is relevant and prudent, ”said Amadi.

Speaking specifically on the intervention for the meters, Amadi said: “I support the financing of the meters but I doubt that will solve the problem as the Discos will use the fund to largely replace the bad meters and control the loss of electricity. But the discount from unmetered customers will remain high and will undermine any movement towards cost-reflective pricing. ”

Nigeria Consumer Protection Network President Kunle Olubiyo noted that given the level of financial liquidity in the sector, support in terms of soft loans would give the sector leeway.

BPE and NERC explained in a joint statement last week that there was an ongoing dispute between the competing factions of AEDC’s majority shareholder / principal investor, Kann Utility Company Limited, which eventually escalated into a dispute with the lender (UBA) which granted the acquisition loan to KANN for the acquisition of majority shares during the privatization exercise in 2013, due to KANN’s inability to service its debt towards the bank.

NERC and BPE explained that during the intractable crisis, AEDC not only struggled to meet its obligations to the market under the terms and conditions of its license, but was also unable to meet its obligations to the market. key stakeholders in the organization, including staff, culminating in industrial action by members of the Nigerian Electricity Employees Union (NUEE).

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