UBA, Polaris takeover of AEDC, IBEDC becomes popular template for discourse at lenders’ Boardroom
Commercial banks in Nigeria are now perfecting plans to takeover electricity distribution companies in the country as N860 billion debts burden weigh down on lenders.
Platforms Africa reports that the banks provided funds to the 11 electricity distribution companies for the acquisition of majority shares in government’s power utilities during the November 1, 2013 privatisation exercise.
The owners of the 11 discos, according to the Bureau of Public Enterprises (BPE), had paid the Nigerian 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 N196 to 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), forcefully took 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’s source, 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.
“If it were the old regime, maybe there would be under-declaration and a bogus recurrent expenditure that will be used to draw it down”, declared Kola Olubiyo, President of Nigeria Consumer Protection Network.
The AEDC sudden turnaround, sources informed BH, has encouraged other banks to go the way of UBA.
In February 2022, the Asset Management Corporation of Nigeria also announced the takeover of the Ibadan Electricity Distribution Company after repeated debt repayment defaults and renegotiation dispute with its lender, Polaris Bank.
The development came barely five months after the corporation secured a judgement from a Federal High Court on September 8, 2021, which granted orders in favour of AMCON as Receiver/Manager of Integrated Energy Distribution and Marketing Limited, IBEDC’s core investor, over default in Loan Service Agreement.
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 said that reports reaching them on the financial health of the discos are alarming.
“Barring a miracle, the discos, as presently constituted, are not in a position to repay the loans released to them.
“Though the discos had been presenting a different picture, but reports released by the Nigerian Bulk Electricity Trading Company Plc (NBET), a Federal Government agency that purchases electricity in bulk from gencos through power purchase agreements, and sells it through vesting contracts to distribution companies and the Nigerian Electricity Regulatory Commission (NERC) on their performances are quite damning.
“I think you should get the reports and study it to understand the picture I am trying to paint,” a top staff in one of the nation’s first-tier banks advised
According to the most recent electricity industry data (January to September 2021) compiled by NERC, 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 N47.61 billion 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.
EkoDisCo 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.
“What this implies is that the discos are not making enough profit to pay for electricity supplied, not to talk of paying their debts to banks.
“Is it not when you make profit that you pay back loans and other financial commitments?”, a ministry of power staff told our correspondent.
Also, a top executive in one of the discos who spoke with our correspondent on the development, amongst other reasons, faulted the Central Bank of Nigeria’s decision to escrow the bank accounts of the 11 discos, an action he said significantly reduced their buoyancy and ability to pay their lenders.
“The Federal Government had in 2021 through the CBN locked the power distributors accounts in an effort to aid the monitoring of funds and ensure the repayment of debts owed the it.
“Unfortunately, the policy accorded high priority to invoices from market operators like NBET and the MO, leaving practically nothing for us to repay bank loans”, the top executive moaned.
Meanwhile, the immediate past chairman of NERC, Dr. Sam Amadi, has warned against the take over of management of electricity distribution companies by AMCON, maintaining that service delivery to consumers will not improve under the arrangement.
According to the former NERC boss, the primary motive of banks is to recover their loans to the discos.
“At this level it is very difficult to see anywhere much improvement will come from. AMCON is not electricity supplying agency.
“Yes, they may keep the same management but their bottom line is to recover their money.
“So, I don’t see much improvement for electricity consumers except AMCON hands over to a much more technically capable operators and may be able to invite its share investors who have the experience to finance and the competence to do change management effectively.”
While stating that some of the discos are finding it difficult to repay their loans, Amadi warned that the discos are going bankrupt.
“There is no doubt that the DisCos are financially distressed. They were going through hard financial times. They were over leveraged so they are struggling to service their debts.
“And compounded by failure in the value chain in terms of payment of revenue arising from customers paying, in terms of public offices owing commitment.
“So, the other inefficiencies in the value chain compound their crisis. They don’t have deep financial capabilities to finance short term and recover long term.
“And of course, they don’t have the financial capabilities to engineer quick turnover around of their operations. So, they are in almost like bankruptcy.
“The banks are taking over and may likely do so because the banks are through AMCON trying to recover their money by taking over the assets so they can manage them better or to guarantee themselves their asset is secure from the money they lent to those companies,” Amadi noted.
Also speaking, the Head of Investment Research at Sigma Pensions, Wale Okunrinboye, said most of the companies were thinly capitalised entities that used leverage to fund the discos.
“In many cases, the firms (discos) were no more than financial SPVs put together to win the bid in the hope of selling on to strategic players in the medium term.
“The financing arrangements they adopted modeled fairly stable exchange rates on the USD debt, cost-reflective electricity tariffs, and relatively conservative collection losses.
“Unfortunately, subsequent events exposed the folly of these assumptions as naira devaluation, greater than expected collection losses and delays in adjusting tariffs resulted in many of the discos been saddled with large losses.
“Interestingly despite the prospect of bankruptcy from missed bank loan payments, many chose to hold on rather than selling equity to stronger players.
“These larger and more capitalised entities could have assumed these obligations staving bankruptcies,” he maintained.
