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N213bn bailout: More banks ready to join power sector financing

By on October 6, 2014

As the power sector investors await the disbursement of the N213 billion interventionist fund announced by the Federal Government last month, amidst the strident call for offshore investment in the Nigerian power sector, there are indications that more local banks are warming up to finance the sector.

The anticipated increase in the appetite of local banks in the power sector was coming at a period when market watchers feared that the burden of funding in the sector was weighing heavily on the participating banks. They therefore stressed the need to attract offshore banks into the Nigerian power sector.

THISDAY checks last week showed that the latest intervention of the Federal Government is making some banks which had hitherto developed cold feet in power sector financing to go back to their drawing boards on how to strike funding deals with the various power sector firms.

Confirming this development, Executive Director Commercial Banking, Access Bank Plc, Mr. Roosevelt Ogbonna, said although Access Bank did not participate in the power sector funding at the initial stage, it makes business sense to participate in the sector financing now.
He explained that the bank did not join the league of banks that funded power sector in the past because it did not really understand the arrangement in place then.

He said: “We don’t deal with things we don’t understand. So when the need for power sector financing came, a lot of people were laughing at us because we kept asking questions like a stubborn student in the class who keeps asking questions when the teacher is busy teaching him. So we were still looking for answers, so when everything spoilt we did not have any exposure to power.

“We all need power to work. So the fact that we were not part of the people, who out of nationalistic interest invested in power at first is not good in a way, but at least, it saved us from problems that have come up today in power.”

He said: “It is a good time now to participate. It makes business sense to participate in the power sector financing now. The same goes for the agric sector of the economy.”

However, there are other bank chiefs who felt it is still too early for more banks to join the financing of power sector in view of the poor performance of power sector loans in banks.

One of such bank chiefs is the Managing Director of Guaranty Trust Bank, Mr. Segun Agbaje, who told THISDAY in an interview that he didn’t think time is ripe to expect a rising appetite of banks in power sector.

Total banking loans to the power sector in 2013 was about $1.3billion for Discos and $1.7billion for Gencos. Additionally, it is expected that $5.8billion would be the loan figure for full year 2014 to the power sector.

For instance, United Bank for Africa Plc granted $700 million in loans to several investors, including Transnational, which got $215 million to buy Ughelli Power, the country’s second-biggest gas-fuelled plant with capacity for 900 megawatts.

Guaranty Trust Bank Plc, advanced $170 million to Mainstream Energy Solutions Ltd. for the concession of Jebba and Kainji hydropower plants. Zenith Bank Plc, the second-biggest lender, provided N40 billion for the acquisition of two electricity distribution companies in Lagos. Others such as Ecobank Transnational Inc., Diamond Bank Plc and Skye Bank also provided loans to power investors.

Making the case for foreign investment in the power sector, Deputy Managing Director and Head of Investment Banking division, FBN Capital, Taiwo Okeowo, said that funding the privatised power sector thus far had been dominated by Nigerian banks with little or no contribution from foreign investors.

He said that with sectoral limit constraints now faced by local banks, Nigerian power sector requires offshore financing estimating that Nigerian banks have committed up to N750billion in the acquisition financing during the privatisation. He identified sources of offshore financing for the sector to include development finance institutions (DFI’s), multilateral agencies, export credit agencies, Chinese funding and offshore commercial banks.

The Federal Government had announced new measures to address financing related issues in the power sector, including a N213 billion bailout facility to settle legacy gas debts.

Allison-Madueke said that the facility, which would be provided by the CBN in collaboration with deposit money banks, would also be used to address revenue shortfall in the power sector.

The minister noted that inadequate gas supply for power generation was one of the three major issues affecting the sector.
She said that up until August  2, the controlled price of gas used by power plants was unattractive to most gas suppliers, which led to an overhang of debts for gas supplied to the sector.

However, at the launch of the ‘2014 Nigerian Banking Sector’ report, the Managing Director, Afrinvest Securities Limited, Mr. Ike Chioke, stated that the issues in the industry in respect of the lending that the industry had extended particularly to the power sector, if there was a problem in that sector and they were not able to service all these loans taken, there would be a problem in the balance of the CBN.

According to him, with the current revenue profile of the power companies, if they are not able to service their debts, the indebtedness would have severe consequence on the banking system; and the CBN balance sheet, may not be able to accommodate another bailout because we have just gone through one.

 

[This Day]