The debt owed to Nigerian banks by operators in the power sector rose by 11.85 per cent in one year to N819.97bn in August this year amid the lingering problems plaguing the sector since it was privatised over eight years ago, according to the Central Bank of Nigeria data.
The PUNCH had reported in July last year that the core investors in the distribution companies were looking to restructure the loans advanced to them by banks for the acquisition of the power assets.
In November 2013, the nation’s distribution and generation companies were privatised, fetching about $3.2bn for the Federal Government, as the Discos and Gencos were sold for $1.7bn and $1.5bn, respectively.
The acquisitions by the core investors were financed mostly by debts, a chunk of which was provided by local banks.
Power generation firms and independent power producers increased their total debt to N500.12bn in August 2021 from N418.01bn in the same month last year, data obtained from the CBN show.
Transmission and distribution firms owed banks N339.39bn as of August, up from N311.54bn a year earlier, according to the CBN data.
“Several banks made loans to the power sector during the power sector privatisation in 2013. If power sector loans become impaired, this leads to an increase in the cost of risk for these banks. These loans include significant sums lent to purchase power generation and distribution assets.” analysts at CSL Stockbrokers Limited said in a note on Friday.
Last week, it emerged that the United Bank of Africa Plc, which provided the loan used for the acquisition of majority shares in Abuja Electricity Distribution Company, had taken over the majority stake in the Disco.
The Nigerian Electricity Regulatory Commission and the Bureau of Public Enterprises disclosed in a joint statement that there was a dispute with UBA over the inability of AEDC’s core investor, KANN Utility Company Limited, to service its debt to the bank.
“It then became apparent that decisive steps were required to address the matter and BPE agreed with the lender’s request to exercise its powers as receiver/manager over KANN by exercising its power over the 60 per cent equity in AEDC as a means of recovering the acquisition granted by the bank,” they said.
CSL Stockbrokers Limited noted that UBA had in 2016 confirmed exposure to Ughelli Power Plant, Ikeja and Abuja Discos.
It said, “As of H1 2021, UBA reported nine per cent of its gross loans to the power and energy sector, which comes roughly to about N245.4bn.
“Since the conclusion of the privatisation process that took place in 2013, Discos have remained the weakest link in the electricity value chain, as they have been grappling with enormous operational challenges.”
According to the analysts, the most obvious challenge has been the perennial issue of the absence of cost-reflective tariffs, a condition that has hindered their ability in fulfilling their financial obligations to the Nigeria Bulk Electricity Trading Plc, leading NBET to default in its contractual obligation to Gencos.
They said, “The overall impact is that the power sector has continually suffered a cash crunch, forcing the government to inject funds to avert a total collapse. Despite a series of government interventions, the problems in the power sector prevail.
“Although we acknowledge that the challenges in the nation’s power sector run across the entire value chain, we believe the distribution companies are the most troubled.”