Business
Energy Based Loans Weigh Down Banks
By Okey Onyenweaku
& Ayoola Olaoluwa
After the financial crisis of 2008/ 2009 in which several banks failed all over the world, Nigeria not an exception, another round of failures may be lurking in the corner, this time no thanks to While the historic 2008/2009 banking crisis was blamed on the subprime loans crisis in other jurisdictions like the USA, Nigeria’s banking problems among other challenges at that time, was hinged on huge non-performing loans trapped, especially in the oil and gas sector of the economy (when the price of crude oil plunged to ridiculous levels).
Today however, market observers have noticed that with huge non-performing loans in the power and energy sectors, Nigeria banks may have increasingly become challenged once again.
Not too long ago, the National Bureau of Statistics revealed that the non-performing loans in the power sector stood at N33.22 billion as at the end of 2020, out of a total of N1.23 trillion NPLs recorded by banks at that time.
Experts say a bank loan is considered non-performing when more than 90 days pass without the borrower paying the agreed instalments or interest.
Non-performing loans tend to occur during economic hardships when delinquencies are high. They added that the main causes of NPL are high-interest rate, Low GDP, Poor credit appraisal, Inflation, unemployment and improper lending disbursement to agriculture sector.
It is feared that the unpaid debt has led to rancorous developments at particularly the Abuja Electricity Distribution Company, but also culminating in, according to the Central Bank of Nigeria, a combined indebtedness of power firms in the country currently put at about N820 billion.
Business Hallmark research has shown that some banks that provided funds to the 11 electricity distribution companies for the acquisition of majority shares in government’s power utilities during the 2013 privatisation exercise are currently moving to take over the ailing firms over their inability to service their loans.
The owners of the 11 discos, according to the Bureau of Public Enterprises (BPE), had paid the Federal Government $1.26billion (N188.1bn then) to acquire 60 percent controlling shares in the firms, while the six generation companies coughed out $1.27billion for the power plants, which brought the total privatisation proceeds for the discos and gencos to $2.53billion.
While the value of the 11 discos paid back in 2013 was N171billion, the value of both transactions (discos and gencos) at the time was about N404billion based on the exchange rate of the U.S dollar then.
However, owing to the discos’ inability to service the facilities, the loans, together with the interest have ballooned to around N860billion, more than 400% the actual money received from banks.
Already, two of the eleven discos, Ibadan Electricity Distribution Company (IEDC) and the Abuja Electricity Distribution Company (AEDC) have been acquired by their lenders.
After several failed debt restructuring deals, the United Bank for Africa (UBA), had also forcefully taken over the Abuja Electricity Distribution Company Plc. in November 2021.
“The public should note that arising from KANN’s inability to service its loan and the ensuing dispute over the servicing of the loan from UBA PLC, the lender exercised its rights by appointing a Receiver/Manager over KANN.
“Stakeholders, including NERC, Central Bank of Nigeria (CBN), and the BPE had on several times worked to broker an amicable resolution between the contending parties,” the Ministry of Power, Nigerian Electricity Regulatory Commission (NERC) and Bureau of Public Enterprise (BPE) had said in a joint statement they issued on the development.
A source in UBA told our correspondent that the core investors in AEDC, KANN Consortium, took a loan of $122m (about N20billion then) from the bank to acquire 60% equity in the disco.
“As at December 2021, the outstanding loan, plus interest, has risen to over N100billion, using the prevalent exchange rate, the source disclosed.
He also claimed that as a result of its dire financial situation, the AEDC had struggled to meet not only its debt obligations to its lenders, but also welfare obligations to its staff, which resulted in a strike action by members of the Nigerian Union of Electricity Employees in December 2021. The industrial action resulted in a total blackout in AEDC’s network area of the FCT, Nasarawa, Kogi, parts of Edo, Niger and Kaduna States.
Another source in the BPE who did not want his identity revealed, told BH that UBA was forced to move in when its management realised that the power firm is “terminally ill” and will no longer be able to effectively service the loans it obtained from it.
“The bank had no option than to take over the disco, or it would have gone down with its funds”, the source further explained.
Corroborating the BPE source’s disclosure, the Minister of Power, Abubakar Aliyu, said the takeover of the Abuja disco by UBA had to happen.
“The AEDC has, of recent, been facing significant operational challenges arising from a dispute between the core investors as owners of 60 per cent equity in the AEDC and the UBA as lenders for the acquisition for the majority shareholding in the public utility.
“The situation has currently deteriorated due to lack of access to intervention finances leading to a point whereby legitimate entitlements of the staff are being owed thus leading to service disruptions on December 6, 2021 within its franchise area”, the minister explained.
BH reliably gathered that the new AEDC management under the UBA receivership declared N11 billion collection for December 2021 operations.
While the owners of the two distressed discos are still smarting from the loss of their prized assets, the fate of the other 9 discos, namely Benin, Eko, Enugu, Ikeja, Jos, Kaduna, Kano, Port Harcourt and Yola presently hangs in the balance.
Sources in some of the affected banks told BH that reports reaching them on the financial health of the discos are alarming.
According to the most recent electricity industry data (January to September 2021) compiled by NERC obtained by BH, the shortfall in remittances by discos to NBET and the Market Operator of the sector rose to N326 billion.
The 11 distribution companies, the report stated, failed to remit N287.8bn to NBET during the period.
The report also stated that the discos could not remit N38.31billion to the Market Operator, an arm of the Transmission Company of Nigeria ((TCN), bringing their cumulative indebtedness to the sector to precisely N325.9 billion during the nine month period.
The report further stated that an invoice of N612.26billion was issued by NBET to the 11 discos as their bill for the nine months period, but the power firms remitted N324.46billion, leaving a shortfall of N287.8billion.
The NERC document stated that while the market operator issued a total invoice of N159.79billion to the 11 discos during the period under review, the discos remitted only N121.48billion, leaving a balance of N38.31billion.
In the distribution category, IBEDC, which had been taken over by AMCON, owed the market N40.76 billion after remitting N40.02 billion (49.5 percent) of the N80.78 billion invoice it received from NBET.
Likewise, Kaduna Electric owed the market N35.76 billion after remitting N11.84 billion (24.8 percent) of N47.61billion of NBET’s invoice.
Benin DisCo owes the market N28.75 billion after remitting N25.91 billion (47.4 percent) of the N54.65 billion invoice, while AEDC remitted N48.48 billion (63.89 percent) of the N75.87 billion invoice leaving a debt of N27.4 billion.
Eko DisCo and Ikeja Electric seem to be the only discos that fared better out of the lot. The duo remitted N44.32 billion (63.5 percent) and N66.29 billion (72.1 percent) of the N69.72 billion and N92 billion invoices from NBET leaving debts of N25.4 billion and N25.71 billion respectively.
On the other hand, Enugu DisCo is owing a debt of N23.98 billion after paying N32.35 billion (57.4 percent ) of N56.33 billion invoice, while Port Harcourt DisCo ended up with N21.46 billion debt after remitting N19.61 billion (47.7 percent) of N41.07 billion.
Jos DisCo has a shortfall of N21.26 billion in the nine-month period, remitting only N9.62 billion (31.2 percent) of N30.88 billion invoice, while Kano DisCo paid in N24.01 billion (55.3 percent) of its N43.4 billion invoice.
The laggard is Yola DisCo which remitted only N2.01 billion (10.1 percent ) of the total N19.95 billion invoice received from NBET.
“GenCos and other market operators often complain that discos usually fail to remit the complete value of energy allocated to them by both NBET and MO.
These have elicited fears in the owners of banks that the fate they suffered when the huge non-performing loans trapped in the oil and gas sector of the economy crippled and caused some banks to go under may be here again.
Analysts seem almost sure that a repeat of what brought about the failure a few Nigerian banks in the recent past may occur if strategic plans are not implemented quickly to avert another crisis.
Recall that after the CBN/NDIC stress test on banks revealed deeper challenges in the industry. Five MD’s of banks including that of Oceanic Bank, Union Bank, Afribank, Finbank and intercontinental were sacked for mismanagement of the financial institutions.
The challenge resulted in immediate capital injection totaling NGN 420bn into five banks.
‘’These banks were identified as insolvent and “chronic borrowers at the Expanded Discount Window4 (“EDW”) of the CBN indicating that they had little cash on hand”, said an analyst who pleaded anonymity. About N200bn was also injected into Bank PHB, Spring Bank, Equitorial Trust Bank and Wema Bank – increasing the number of intervened banks to nine.
CBN removed the Managing Directors of eight of the nine banks that received injections – all but Wema Bank, which had just replaced its management in June 2009.
A tenth bank, Unity Bank, was also determined to be insolvent but “had sufficient liquidity to meet its current obligations” and did thus not receive additional capital.
