It is no longer news that some African countries have lost some of their National Assets to Foreign lenders, under the Export Credit Agencies (ECA) Loan Facility.
A recent case in point, is that of the Zambian government which is about to lose some of its Chinese Banks financed assets due to loan repayment defaults, in what some observers have termed, a form of neocolonialism For sure the Zambian Government must have read the Terms and Conditions of the Loan, before acceptance. The Chinese did not put a gun to their heads to accept the Offer Letter of the loan, if the assets financed by the Chinese loans were pledged as collateral. If so, what is neocolonialism about it? Obviously the Zambian government must have failed in ensuring that the cash flow generated from the business was adequate enough to service and amortize the Loan facility, or poor project management/ implementation.
To a very large extent, we must realize that banking rules are international and universal. African countries should sit up and stop self pity, and face up to the financial obligations. There is no free lunch. Perhaps the next African country that may face the harsh reality that Zambia is now confronted with may well possibly be Nigeria, because going by the rate that the country is over extending itself with massive borrowing from the China Exim Bank and other financial institutions of Chinese origin. If care of financial management is not taken, Nigeria, like Zambia, could end up losing some of its Chinese funded assets such as the Mambila Hydro Power Facility, being negotiated with the Chinese for a loan of about $6.5 Billion. A project earmarked to be constructed by one of China’s power construction companies. As a Power Sector player, it is clear to me that power generation, though has its own challenges, is not the major challenge of Nigeria’s power sector. But one of the main challenges still remain in power Distribution and Transmission. Some of the DisCos, with their extensive weak and obsolete networks and transformers, experience very high Aggregate Technical Commercial & Collection (ATC&C) loses, and are therefore incapable of posting and sustaining the financial liquidity of the power value chain in the country. The DisCos problems are also compounded by the none adherence of the Sale Agreement by the Federal Government, such as the tariff regime not being cost reflective, the fixed capital expenditures captured in the calculation of the tariffs and sundry operational challenges. Further, at the current generation capacity of 4000-5000MW of power, by the GenCos, some DisCos do reject load (electricity), for myriad of reasons. What then would happen with the additional generation of 3050MW of power by the Mambila Hydro Power, if the challenges facing the DisCos and TCN are not addressed? The cash flow thus generated in the Nigerian power sector, clearly would be inadequate to service the Chinese $6.5 Billion and other loans currently been negotiated. As at today, the cash flow from the DisCos falls short of repayments of all costs associated with the services provided in the entire power value chain,- gas supply, NBET, TSP, ISO etc. As a one time banker, I do not see or have anything against bank borrowings to fund viable national assets. However, my main concern here is to ensure that we get our finance model and numbers right and to prioritize the enhancement of the commercial end and cash generating arms of the power sector, which are the DisCos and to sound an early warning to the Federal Government of Nigeria to be extremely cautious in borrowing huge Chinese and/or foreign loans to finance homun
gos power projects such as the Mambila power project. My suggestions on the way forward and most critical “To Do” list in the power sector at this stage are: 1. Ensure discipline and strict adherence by all players down the power value chain, including the Federal Government to the various Market Rules, Grid Code, PPA, Vesting Contracts etc 2. Review the Tariff; with a view of making it Cost-Reflective 3. Reduce the FGN Equity holdings in the privatized PHCN Companies from 40% to as low as 10% 4. Commercialize, regionalize and increase FGN budgetary allocations to the Transmission Company of Nigeria (TCN), as long as it still remains a government-owned entity. 5. Restructure and enhance the Management of TCN, to position it in playing its critical role in the power sector. 6. Constitute a lean (maximum of 7 Directors) Technical/Supervisory Board of Directors for TCN, NBET and all other FGN Power companies, that are currently without Boards. TCN, being a major backbone of the Power sector should be manned by very competent Management and Board. 7. FGN, as a matter of urgency should liquidate the legacy debts of all MDAs owed the DisCos. 8. NERC, the power sector Regulator, should step up and be more stringent and proactive in its regulatory functions in the sector. 9. NERC should carry out a total review of the technical and financial capabilities and competencies of all the current players in the Nigerian Power value chain, especially the DisCos, GenCos, TCN, NEMSA etc. 10. NERC should review the aspect of the tariff as it relates to Capex, which currently discourages the deployment of Meters by the DisCos If we are to avoid losing some of our National Assets in future to International Loan lenders, just as the case of Zambia, then the Nigerian Government must ensure that our borrowings are for assets and infrastructure that would generate enough and sufficient cash flow to service such loans.
By Sonny Iroche_
He was an Executive Director in the Transmission Company of Nigeria and an experienced Investment Banker of over 30 years and sits on the Board of a number of Companies.