No Cause for Failure of Banks

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Dikki

Contrary to recent media reports, Benjamin Dikki, director-general, Bureau of Public Enterprises, says commercial banks are not facing an imminent collapse  as a result of their involvement in the funding of the power sector

By Anayo Ezugwu  |  Jun. 9, 2014 @ 01:00 GMT

BENJAMIN Dikki, director general, Bureau of Public Enterprises, has dismissed media reports of an imminent collapse of commercial banks in the country over their involvement in the funding of the power sector. He dismissed the claims at an all-parties’ meeting on Wednesday, May 21, in Abuja, with the owners of the defunct Power Holding Company of Nigeria, PHCN, and the Africa Energy Team of the World Bank.

Dikki noted that the fears by some of the eminent takeover of successor companies due to the purported non-servicing of loans or about the prospect of stress to the banks due to their exposure to successor companies were misplaced as the successor companies did not borrow directly from the banks for their own books. Furthermore, he said, no assets of the successor companies were pledged as collateral. It should be noted that it was the acquiring companies that borrowed based on their cash flows and accounts. The agreement signed also required that the consent of the BPE be 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 takeover of the successor companies. Their financiers also were aware of this,” he said.

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

He said that there were unusually 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 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 are normal at the early stages.” He urged investors not to focus on short term gains but to invest in infrastructure that would 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 privatised assets of the PHCN successor companies. The banks expressed fears that they might be unable to recoup their investment following the myriads of problems facing the sector.

Alex Otti, group managing director, Diamond Bank Plc, 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.

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