Government and Banks agree to restructure energy sector debts

Belinda Ayamgha

Accra, Sept.1, GNA – 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

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

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.


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