The government through an effort to raise funds to help defray part of the Volta River Authority (VRA) debt owing to its suppliers is hopeful securing some funds very soon from a number of domestic banks.
The government, through the Ministry of Finance (MoF) and the Ministry of Power announced last week that, it is progressing towards a successful conclusion in the restructuring of a substantial portion of the debts owed by the VRA.
In a statement released by the ministry of finance said, “the agreement when concluded, should lead to a comprehensive restructuring of VRA’s balance sheet, based on concessions amounting to approximately GHS300 million granted by a number of domestic banks (“Lenders”) with past due facilities with VRA.”
It added that, “the Lenders have been led by representatives of the Ghana Association of Bankers (“GAB”) and the Chief Executives of the Lending Banks in the negotiations with the MoF.”
The government, however, expects lending banks to adopt the VRA debt restructuring arrangement which is also intended to relieve and improve the quality of their lending assets and the credit standing of the energy sector State-Owned Enterprises (SOEs), demonstrating government’s commitment at all times to honour its statutory obligations.
This paper can confirm that debts owed banks by the VRA alone are now in excess of US$1.1 billion dollars, coming up to about GHC4.4 billion.
Documents available reveals that the state owned company’s indebtedness to a number of banks alone as at March, 2016 was about US$1.1 billion.
The figure is minus current interest, roll over fees and other charges and expected to run in excess of US$2.2 billion when these are added.
The documents from the VRA on its financial obligations reveal that the VRA is indebted to about 13 local banks in the country as well as other foreign financial institutions.
The banks include Ecobank, Stanchart, Unibank, Zenith Bank, GT Bank, UBA, UMB, CAL Bank, ACCESS Bank, Stanbic Bank, Fidelity Bank, First Atlantic Bank Ghana and some international banks among others.
The debts were accrued following loans used to buy light crude oil and gas among other things.
The final restructuring package includes the following: a rebate of 3.5% of the the gross indebtedness of VRA to lending banks as at May 31 2016 and also, an extension of the maturity of the Cedi and US dollar denominated components to a maximum of five (5) years, with an option to accelerate repayment within 3 years.
Additionally; the restructuring allows Government/VRA to achieve a maturity transformation (repayment period) from overdue status to up five (5) years, a reduction in the interest rate for the Cedi component to 22% p.a. from an existing average of 32% p.a., to be reviewed after six (6) months and a reduction in the interest rate for the US dollar component to 8.5% p.a. from an existing average 11% p.a.
The statement further indicated that, “Pursuant to the debt restructuring, Cedi and US Dollar denominated loan facilities totalling GHS 2.2 billion, (“VRA Legacy Debts”) will be repaid from a special account opened to receive the proceeds accruing under the Power Generation & Infrastructure Support sub-account, under the Energy Sector Levies Act (ESLA, 2015) and apply an estimated 50% of the proceeds to retire the VRA Legacy Debts.
“Government will apply the other 50% of proceeds under ESLA plus the current enhanced “business-as-usual” receivables of VRA all of which is to be escrowed into a centrally-managed account to be used to service trade and other creditors of the power sector.”
Commenting on the nature and terms of the restructuring package, the Minister of Finance, Mr. Seth Terkper, who also has additional oversight responsibility for the Ministry of Power, stated: “It is important first of all, to note that the Energy Sector levies are being applied as purposed and approved by the Parliament of the Republic of Ghana.
This approach ensures that there is absolutely no impact on the country’s debt stock or further burden on tax payers. By this arrangement the Government is taking on its responsibility to support the power sector agencies including VRA, to fully repay all legacy debts owed to the domestic lending banks and trade suppliers. The immediate impact of this arrangement is to strengthen the balance sheet of VRA and enhance its ability to arrange more structured trade lines to support its day-to-day operations under a well-managed escrowed receivables structure, which will avoid build-up of further unsustainable debt.
VRA is a fully state-owned power generation utility. The Authority operates a total installed electricity generation capacity of 2,434 MW from thermal and hydroelectric sources.
VRA’s debt burden has increased over the past several years, due to a combination of operational and financial difficulties. The Government in its quest to ensure fiscal sustainability and to reduce the extent to which it is required to grant financial support to state-owned entities has embarked on an exercise to strengthen their balance sheets.
The agreement reached with the Lenders therefore represents a significant milestone in this endeavour.
With a stronger financial profile, greater fiscal discipline, and continuous operational improvements, VRA will be adequately positioned to fulfil its mandate to the people of the Republic of Ghana.
Adnan Adams Mohammed
