Egbin Power Plant woes a N400bn warning sign for Nigerian banks

The United Bank for Africa (UBA) plc last week filed a petition against Sahara Energy Resource Limited (Sahara Energy) at a Federal High Court in Lagos asking that the company’s assets be liquidated to repay a N15 billion loan its partner company, KEPCO, acquired in 2013 to buy Egbin Power, an indication that lenders’ patience for the energy sector may be wearing thin.

The troubles at Egbin Power is a warning sign for Nigerian banks whose total exposure to the power sector stood at N403 billion as at the end of 2018, according to latest data from the National Bureau of Statistics (NBS).

KEPCO, like many successful bidders in 2013, applied for the facility with Sahara Energy as its corporate guarantor and obtained a $35 million debt.

UBA said KEPCO failed to meet its obligations even after it restructured the loan on two different occasions. The interest on the rescheduled debt increased the facility to $42.282 million (N15.2 billion) as of December 31, 2018.

Analysts say it is expected that other lenders may take even more drastic action as hopes of recovering their loans seem untenable with the difficult operating environment power companies have found themselves.

“I think we should expect to see more banks taking this kind of action,” said Taiwo Oyedele, head of tax at PwC Nigeria. “The tough policy environment of these companies where there is no market tariff and transmission is inefficient means that more power companies will continue to default and we will see actions like this.”

Power distribution companies (DisCos) have been unable to fully collect electricity bills and even remit less.

The sector regulator in a recent report said DisCos remitted about 30 percent of collections. This means generation companies (GenCos) like Egbin do not have their invoices fully settled.
In February, the company said it was owed N100 billion by the Nigerian Bulk Electricity Trading Company (NBET), a factor that has constrained its ability to deliver at full installed capacity of 1,320MW.

Egbin’s power generation fell to 1,085MW in March 2016 and it dipped to 537MW in February this year. The company reported over N7 billion in losses for 2017.

According to court records, UBA says Sahara Energy is insolvent and unable to pay its debt and in the circumstance, it is just and equitable that the company should be wound up. KEPCO owns 70 percent stake in Egbin after both companies entered an operation and maintenance agreement.

The energy sector accounts for over 35 percent of banks’ NPLs, according to industry operators, and banks are unwilling to further expose themselves to risk assets, a move that could set back the energy sector and force litigations like the one instituted by UBA to call up debts and seize assets of power companies.

For example, Zenith Bank, one of Nigeria’s biggest banks, recorded a slight dip by 2.88 percent in its NPLs to N38.487 billion at the end of 2018, compared to N39.63 billion recorded in the bank’s books at the end of 2017.

The bank said gross loans to the energy sector, comprising oil and gas, as well as power firms, stood at N598.99 billion, dropping by 19.46 percent from N743.713 billion recorded in the 2017 financial year.

In a speech at the annual Vanguard Economic Discourse in January, Ifie Sekibo, managing director, Heritage Bank Limited, said the bank’s exposure to the energy sector is at 35 percent which has already impaired their books. This creates a problem for new projects that could reduce energy poverty for over 80 million Nigerians without access to power.

This rift seems to validate Guaranty Trust Bank’s decision to stay away from the power sector. Giving a breakdown of the bank’s performance in the 2017 financial year in Lagos last year, Segun Agbaje, managing director, said the bank decided to stay away from the onset of the power privatisation programme because it was not professionally structured.

Agbaje said this decision was based on their position that what was needed for the programme was equity and not debt and when it was clear that the programme would be driven by debt, it stayed away. The bank said it will stick to the policy until government and regulators apply the necessary strategies to make investment in the sector safe and secure.


ISAAC ANYAOGU