GHANA – Government has reached an agreement with some local banks to restructure legacy debts of State Owned Enterprises (SOEs) in the energy sector.
The initiative would cover a restructuring of the Volta River Authority’s debt as well as those of the Tema Oil Refinery (TOR) and Bulk Oil Distributing Companies.
It would target about half of GH₵2.2 billion of the total energy sector debt of GH₵4.4 billion being paid over a period of three to five years
Mr Seth Terkper, Minister of Finance, speaking at a media briefing on the initiative, said it is the first major collaboration between the Ministry, the Central Bank and major banks in the country and the first time dealing with the banks as an association.
He noted that the payments would be funded by collections from the energy sector levies: Energy Debt Recovery Levy, Public Lighting levy, Price Stabilisation and Recovery Levy and the National Electrification Scheme Levy; backed by the Energy Sector Levies Act.
Under the VRA agreement, which would restructure approximately half of the debt on the VRA’s balance sheet, an upfront payment of GH₵250 million.
It would be paid to the banks on behalf of VRA from the new collections from the energy sector levies.
The key arrangers in the VRA agreement are Ecobank Ghana Limited, Stanbic Bank Ghana limited and Standard Chartered Bank Limited.
He explained that the agreement would also see a reduction in the average interest rate on the debt from 30 per cent to 22 per cent, and a reduction in the interest on foreign currency component of the VRA debt from 11 to 8.5 per cent, which could result in savings of about GH₵ 350 million.
Repayments would be funded from a debt service account, which would receive cash flows from the energy debt recovery levy and a debt service reserve; and a proportion of VRA’s receivables.
Mr Terkper expressed the need that the proceeds of the energy debt recovery levy, which are applied to VRA debts, would be converted into equity on the Authority’s balance sheet or could be subject to an on-lending arrangement with the government.
He said government had also conducted an assessment of arrears with the SOEs and cross-SOEs’ arrears and prepared an action plan and a timeline for their elimination which would include improving the repayment the “legacy debt” to ECG of GH₵728 million over five years.
The agreement with regard to TOR involves refinancing of a GH₵917,000,000.00, Long Term Loan Facility into a 10- year facility to be settled as follows: “Principal: to be settled out of the proceeds from an investment to be made by TOR in a 10-year Bond, and Interest: to be settled out of proceeds due TOR under the Energy sector Levies Act, 2015 (Act 899).”
Mr Terkper said the initiative is expected to not only increase energy security prospects and ensure improved balance sheets for the SOEs but also improve outcomes for consumers and boost economic growth, among others.
It would also reduce Non-Performing Loans on the balance sheets of the banks and also improve their profitability.
He said the initiative would remove fiscal risks posed by the SOEs and the threat to the balance sheet of the banks and their consequent inability to provide the necessary support to the VRA and other SOEs.