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Anxiety Grips Bank over Power Assets Funding in the Country

By on December 24, 2012

As Nigeria continues its march to experiencing a rapid transformation in the power sector through the ongoing reforms in the sector, the Banks in the country have raised concerns over the funding pattern for the power assets in the country.

The Banks have been involved in the negotiations over assets in the sector and the funding prospects, but are interested in the proper verification of assets before a deal on sales is sealed in the sector.

With the privatization of the power sector entering a very crucial stage and level in the country, banks are also harping on effective due diligence to avoid any gridlock or crisis that may occur as a result of investing in the acquisition of assets.

One of the major challenge in the process identified, is the recent development that the prospective core investors cannot use the assets of the power companies as collateral for loans, which means a tough path to tread for funding.

But in his assessment of the situation Head of the National Electricity Regulatory Commission (NERC) Mr Sam Amadi stated that the issue of Bank funding should not be a concern, because one of the condition for the core investors was that they must have a capital base value of about $100 million.

He further said “If they have this net worth, they should be able to use it as collateral for whatever finance they seek, without relying on the assets of the power company they bought. You cannot allow them to use the assets they are purchasing as collateral to finance those assets. If you do, that means anyone can buy those assets.”

Also of special concern to the Banks is the vesting contract agreement that Discos one of the core investors group is to sign with the Nigerian Bulk Trading Company. It was revealed that the vesting contract requires Discos to post a bank guarantee for the minimum agreed power to be supplied.

For the Bankers they believe that the key issues in the funding remain the viability of the power assets, the clarity on the net worth of the private core investors and the insight and understanding of the asset holders.