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BPE dismisses claims of banks’ collapse over power sector loans

By The Citizen
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The Bureau of Public Enterprises (BPE), yesterday, urged investors to discountenance claims of the imminent collapse of commercial banks that invested in the nation's power sector.

The Director General of BPE, Mr. Benjamin Dikki faulted the claims while speaking at an allâ€'parties meeting, Wednesday, in Abuja during a presentation to the owners of the Power Holding Company of Nigeria (PHCN) Successor Companies (SCs) by the Africa Energy Team of the World Bank.

Dikki noted that the fears by some of the eminent take-over of SCs due to the purported non- servicing of loans or about the prospect of stress to the banks due to their exposure to SCs, were misplaced as the successor companies did not borrow directly from the banks for their books.

According to him, 'furthermore, no assets of the SCs were pledged as collateral. It should be noted that it was the acquiring companies or SPVs that borrowed based on their cash flows and accounts. The SPA signed also requires that the consent of the BPE is obtained before the core investors can borrow.

'The banks lent to the core investors based on their capability to pay. The investors are supposed to have made adequate provisions to take care of their obligations to their financiers from the outset. They knew that they were not going to make profit immediately on take-over of the SCs. Their financiers also were aware of this.'

During the presentation entitled 'Reform of the power sector in Latin American countries in the 1990s,' aimed at sharing experiences of the power sector privatization in these countries, Mr. Pedro Antmann reminded the investors that their primary focus should be to provide adequate and efficient power supply to Nigerian consumers.

He said there were unusual challenges at the initial stages of the privatisation exercise but that with determination and the right strategy, it would be surmounted.

Antmann urged the investors not to aim at making profit now but to endeavour to develop infrastructure and to meet the cost of supply.

The World Bank official advised the Nigerian Electricity Regulatory Commission (NERC) to make a provision in its rules to adjust tariffs in times of low generation and shortage of gas supply.

Antman, drawing from experiences in other countries, said these challenges were normal at the early stages and urged investors not to focus on short term gains, but invest in infrastructure that will guarantee sustained future profits.

It would be recalled that Nigerian banks had expressed concern over the possibility of losing about N1 trillion they invested in the acquisition of the privatized assets of the Power Holding Company of Nigeria (PHCN) Successor Companies (SCs).

The banks expressed fears that they may be unable to recoup their investment following the myriad of problems facing the sector.

Group Managing Director/Chief Executive Officer, Diamond Bank Plc, Dr. Alex Otti, had at a power investors' forum in Abuja, said that as at 2013, the banking industry had invested well over N750 billion in the power sector and that they were ready to do more.

Consequently, the banks called for an increase in electricity tariff and in the price of gas, saying it would boost the revenue profile of the power companies and their ability to repay their debts. Some of the chief executives of banks, who spoke at the just concluded Seventh Lagos Economic Summit, tagged Ehingbeti 2014, complained of the revenue profile of the recently privatized power companies, saying it is not meeting the expectation of investors.