GENCOs: Banks eye N678bn investment

Financial-market15 December 2013, Abuja – Local and international banks are now jostling for the funding of N678bn rehabilitation of power generation companies.

This indication emerged at the weekend as virtually all the nation’s banks are showing renewed interests in the power transformation project.

They started by providing the N525bn funds for the acquisition of the Power Holding Company of Nigeria.

The Group Head, Project and Structured Finance, FCMB Capital Markets Limited, a member of the First City Monument Bank Group, Mr. Robert Grant, said, “The estimated $4.28bn rehabilitation expenditure would likely be financed by the Nigerian banks with support from international financial institutions.”

He also confirmed that the banks played a major role in the privatisation of the 15 PCHN successor companies and added that they would continue to take advantage of the opportunities in the privatised power sector.

He said, “Eleven PHCN successor Distribution Companies and four generation companies have been privatised and privatisation of the 10 NDPHC NIPP assets is imminent.

“The $3.3bn acquisition financing for the 15 successor power companies was provided primarily by the Nigerian banks.”

The Federal Government had on November 1, 2013, handed over to private investors the successor companies of the defunct PHCN in what has been touted as a complex but well coordinated privatisation exercise.

The Ughelli Power station was handed over to Transcorp; Geregu to Amperion; Kainji Hydropower station was given to Mainstream Energy Solutions Limited; while the Shiroro Hydropower station was handed over to North South Power Company.

CMEC/Eurafric Limited, the preferred bidder for the Sapele power station, has yet to complete the 75 per cent balance of the price of the power plant.

The second phase of the privatisation process which is the sale of NIPP assets is ongoing and Grant has said the acquisition cost for 80 per cent equity in the 10 NIPP assets will likely exceed $6bn.

“It is expected that the financing will likely be provided predominantly by international financial institutions because of local bank liquidity and single obligor capacity constraints. International interest in the NIPP assets is partially due to the fact that the assets are relatively new and construction risk will be minimal,” he said.

Grant is, however, of the opinion that Nigerian banks would play a significant role in financing daily operational requirements, value added services including funding, distributive trade network and trade finance of the GENCOs in the post privatisation era.

He said, “The speed of the initial transformation has been breathtaking but significant sustained effort will be needed from all stakeholders over the next five years, including, but not limited to, the local banks to ensure that the Federal Government’s 2016, 20,000 MW target is achieved which will aid in achieving Vision 2020.”

Grant had, in a telephone interview with our correspondent, said the privatisation exercise for the PHCN successor companies offered a rare opportunity for the banks to take advantage of the power sector privatisation programme.

He said, “This is once in like 10 years transaction and the banks played a major role. This is because they have seen the future of the power sector just like it was 10 years ago in the telecoms industry. This was the same when oil blocks were awarded several years ago.

“So, the banks have the capacity and they know that if they don’t get involved now, it will be difficult doing that later. So, this is about supporting indigenous opportunities.”

Speaking in a similar vein, the Director, Centre for Petroleum, Energy Economics and Law University of Ibadan and the President, Nigerian Association for Energy Economics, Prof Adeola Adenikinju, lauded the efforts of local banks in funding the power sector privatisation.

He said, “I think the amount spent to acquire the assets of the privatised PHCN successor companies is significant and the fact that most of the companies met with the deadline is quite a positive development. The significant role played by local banks in raising the huge funds is also commendable and speaks a lot about the depth of the Nigerian financial system after the banking sector reforms.

“My view is that the banking system will continue to play an increasing role in the energy sector reforms. Hence, they need to build their capacity in energy investment, financing and risk analyses. However, the banks, because of the configuration of their balance sheets, cannot be counted upon to provide long term financing requirements for the power and other infrastructure sector.”

Contrary to complaints by real sector operators and small business owners that indigenous banks were not advancing credits to them, the Group Managing Director/Chief Executive Officer, Access Bank Plc, Mr. Aigboje Aig-Imoukhuede, said during the recent Nigerian Guild of Editors’ Forum in Asaba, Delta State, that the local banks provided over 70 per cent of the funds used by investors to acquire the power assets.

The Head, Oil and Gas, Ecobank, Mr. Wale Fasuyi, also said, “Indeed, over 70 per cent funding for the power assets came from Nigerian banks and Ecobank participated in a couple of syndications to finance both the GENCOs and DISCOs.”

– The Punch

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