Govt Hastens to Clear $2.4 Billion Energy Debt

Government should by the end of this month commence the repayment of all debts owed in the energy sector and improve operations in the sector.

This will follow the successful issue of the 15 year energy bond to raise 10 billion cedis from its investors.

The Finance Minister, Ken Ofori Atta who disclosed this to Citi Business News stated that work has intensified to get the bond launched and closed by September end.

"Work is being done quite aggressively about it... there was a mini roadshow in England some three to four weeks ago and we had a meeting here in Accra so the structuring is being done and the expectation is that by the end of this month, they should be able to launch the bond and hopefully close it," he remarked.

The Vice President Dr. Mahamudu Bawumia first announced the decision to issue the energy bonds in April this year at the World Bank/IMF Spring meetings in Washington DC.

According to him, the move is to put the energy sector back on a strong financial footing.

At the time, the debts owed the energy sector was estimated at 2.4 billion dollars or 10 million cedis.

This comprised 1.2 billion dollars owed fuel suppliers and the VRA's indebtedness to commercial banks while other entities such as Ghana Gas, GRIDCo, Asogli, NEDCo among others owed an estimated 1 billion dollars.

In May 2017, the Ministry of Finance selected Fidelity Bank and Standard Chartered Bank as lead managers for the bond.

Their mandate is among others to advise, guide and drive the transaction process as well as structure and document the transaction.

Commercial banks that have been exposed to the debts are highly confident that the bond will increase liquidity and enhance their operations.

The Managing Directors of Cal Bank Frank Adu Junior believes the move will restore confidence in the banking sector that has been hugely affected by the legacy debt.

"Financial closing is mid August so I would assume that by that time the funds will be available for distribution. This will help by cleaning up Cal Bank's BDC debt," Frank Adu stated.

On his part, the MD of Zenith Bank, Henry Oroh said the bond will increase liquidity in the financial sector.

"The government is raising bonds from inside and outside the economy and paying those debts thereby injecting liquidity into the banks. Once that happens the banks will now have capacity to support the government more, and there will be capacity to support the private sector. It will be a platform to trigger growth in a very significant way going forward," he noted.

Citi Business News understands the government has embarked on roadshows both locally and internationally to attract investors for the bond.

Deputy Energy Minister, Joseph Cudjoe describes the exercises as successful.

He however says the government is likely to issue about 7 billion cedis of the total in the interim in a bid to secure a relatively lower interest on the deal.

With the successful payment of the debts, banks' rising NPLs which recorded 8 billion cedis in June this year, are expected to reduce significantly.

This will also position the banks strongly to offer credit to other sectors for their growth and expansion.

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