Banks’ risk management strategy yields fruit as exposure to power sector slumps - BUSINESSDAY
Nigerian banks are beginning to reap the fruit of an excellent risk management strategy and efficient portfolio allocation as exposure to the power sector slumps.
Only one out of Nigeria’s five biggest lenders recorded a gross loan of 10 percent to the power sector, an analysis of the banks’ audited accounts last year shows, as they are reluctant to extend further financing to the electricity distribution (DisCos) and generating companies (GenCos).
For the top banks’ books reviewed for this story including Access, UBA, GTBank and First Bank, power sector loans constitute their lowest non-performing loans.
The United Bank of Africa (UBA) gave the highest loans to the power sector last year totalling N172 billion, which is 10 percent of the total gross loans of N1.72 trillion. Out of total non-performing loans of N110 billion, a paltry N2.2 billion was recorded in the power sector.
The exposure of First Bank and Access Bank was so insignificant the banks didn’t put it on a spreadsheet. Gross loans to the power sector were N73.4 billion and N852 million, respectively, for First Bank and Access Bank.
“The tough policy environment of these companies where there is no market tariff and transmission is inefficient means that more power companies will face difficulties,” said Taiwo Oyedele, head of tax at PwC Nigeria.
While the banks’ report did not detail which value chain in the power sector (generation, distribution or gas producers) was responsible for the loans, the liquidity crisis in the power is a shared pain across all value chains.
Between October and December last year, Nigeria’s 11 DisCos collected from consumers only 65 percent of the value of electricity sold but remitted back to other operators only 33 percent of what they collected, according to the third quarter report of the regulator, the Nigerian Electricity Regulatory Commission (NERC).
In monetary terms, total billing to electricity consumers by the 11 DisCos was N172.9 billion but only a total collection of N106.7 billion representing 65.5 percent of billing was recorded.
“The collection efficiency indices indicate that a sum of N3.45 out of every N10 worth of electricity sold during the third quarter remains uncollected as and when due,” NERC said. Thirty-three percent of the remittance indicates a value of N2.1 of every N7 worth of electricity sold.
To tackle these challenges, NERC has carried out a forensic audit of the DisCos in terms of what they really collect, spend and save and compelled them to publish their accounts. This revealed that many of the DisCos are on the verge of bankruptcy.
The DisCos’ financial condition is critical since they collect market invoices and pay the Nigerian Bulk Electricity Trading Company (NBET) who now settles everyone else across the value chain.
DisCos say an absence of cost-reflective tariff threatens their operations.
Sunday Oduntan, executive director, Association of Nigerian Electricity Distributors (ANED), said their biggest threat is uncertain tariff.
While NERC has been unable to effect a tariff review, it is setting regulations that could fuel opposition against it.
Beginning from May 1, electricity consumers across Nigeria will start getting meters from accredited Meter Assets Providers (MAP) to reduce the unfairness in the DisCos’ practice of billing by discretion.
Ikeja Electric has appointed Mojec International Limited to supply 399,790 meters, Consolidated Infrastructure Group Ltd (397,922 meters) and New Hamshire Capital Ltd (276,699 meters) within its franchise under MAP. Benin Disco appointed FLT Energy System Ltd, G-Unit Engineering Ltd, Inlaks Power Solution Ltd, Sabrud Consortium Nigeria Ltd and Turbo Energy Ltd to provide meters within its franchise.
These third-party investors in meter provision will have about 10 years to recoup investments they make in the sector, and also earn reasonable returns on their investments, according to NERC.
BALA AUGIE & ISAAC ANYAOGU