Business
Banks under pressure to divest from Discos
BY EMEKA EJERE
There is serious pressure on banks which recently took over the shares of core investors in some Electricity Distribution Companies (Discos), to transfer those shares to credible operators without further delay.
Last week, the Bureau of Public Enterprises (BPE) and the Central Bank of Nigeria (CBN) handed down a 6- month deadline to such banks to exit the electricity companies.
The federal government had in July announced the commencement of a restructuring programme for some of the Discos with the takeover of Kano, Benin, and Kaduna electricity distribution companies by Fidelity Bank Plc, Afrexim Bank, Keystone Bank, and Ecobank Plc, which initiated actions to take over the boards of the three Discos.
At the same time, the BPE made public the takeover of another troubled distribution company, Ibadan Disco by the Asset Management Corporation of Nigeria, explaining that it (BPE) had obtained approval from the Nigerian Electricity Regulatory Commission to appoint an interim managing director for the distressed power firm.
Similarly, the federal government, in a notice signed by the Director-General of BPE, Alex Okoh, and Executive Chairman, NERC, Sanusi Garba disclosed it had begun restructuring the management and board of Port Harcourt Disco to forestall the imminent insolvency of the utility.
The Privatisation
Privatisation of Nigeria’s distribution and generation companies were In 2013 fetched the federal government about $3.2billion, as the Discos and Gencos were sold for $1.7billion and $1.5billion, respectively. The acquisitions by the core investors were financed mostly by debts, a chunk of which was provided by local banks.
However, based on a report by the Nigerian Bureau of Statistics (NBS), in 2020, the Non-Performing Loans (NPL) in the power sector was N33.22billion out of N1.23 trillion NPLs that banks had recorded.
Accepting their default status, investors in the Discos had in 2020 recommended that the acquisition debt should be refinanced by the Bank of Industry (BoI) and extended for 10 years on a single-digit interest rate and two years moratorium, an option the CBN rejected.
The debt owed to Nigerian banks by operators in the power sector rose by 11.85 per cent in one year to N819.97billion in August 2021 amid the lingering problems plaguing the sector.
According to a report by analysts at CSL Stockbrokers, “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.”
Little wonder, 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 in 2021.
Intervention.
Despite the huge investment in the sector amid the incessant collapse of the power grid, stakeholders are currently at loggerheads over the poor performance of the 11 Discos operating in the country and the defence of the Nigerian Electricity Regulatory Commission (NERC).
With electricity generation wobbling despite the introduction of Service Based Tariff pegged on improved service, NERC had decried that rising insecurity, inflation and harsh operating environment were bedevilling the performance of Discos. Meanwhile, the Discos have attributed the persistent poor supply to the load shedding by the Transmission as a result of power generation.
However, there are speculations that the exercise was purely an intervention by the federal government through the BPE which is working with some of the creditors of the ailing Discos for a way out of their crisis.
For instance, a source disclosed that Fidelity Bank took the action along with other creditors by activating the call on the collateralised shares of Kano, Benin, and Kaduna Discos in a bid to take over their boards over their inability to repay loans obtained to acquire assets during the 2013 privatisation.
BPE is said to be engaging with the CBN to ensure an orderly transition and to ensure that Fidelity Bank does not hold the Disco shares in perpetuity.
The resolution by the CBN not to allow lenders to carry Discos’ huge non-performing loans collected on their books without making a provision for them any longer may have precipitated this action.
The affected Discos are said to have accounted for over 85 per cent of the cash shortfall recorded by the industry so far, and all efforts to help them back to profitability including over N1.6 trillion in intervention funding for the sector have failed.
The Director-General of the BPE, Mr. Alex Okoh, in a submission seen by Business Hallmark that the banks were not expected to hold the shares in perpetuity, adding that those shares must be sold to credible operators within the stipulated period.
He explained, however, that if the banks fail to sell the controlling shares to other operators within six months, they could be given a maximum of another six months to do so.
His words: “It is important for me to mention at this point that the banks are not expected to hold the Discos in perpetuity.
“In fact, in conjunction with the CBN, we have given them a deadline of six months within which to sell those shares to credible operators approved by the BPE and NERC and should they not be able to meet that deadline, they can be given a maximum extension of another six months. So in one-year maximum, they should be out of the Discos.”
Okoh also revealed that the $500 million World Bank loan for the Discos to enable them improve their facilities, such as provision of transformers, feeders and transmission lines, was being administered by the interim management put in place in Discos where the banks took over the shares of the core investors due to the latters’ failure to service their loans.
