Weekly Insights – Ghana – 21/04/2017 – Nimed Capital Limited

September 20, 2020 By: Nimed Capital0 comments

THOUGHT OF THE WEEK

Energy Sector Debt Relief for Banks

As of August 2016 the Volta River Authority (VRA) owed nineteen commercial banks and energy sector providers to a tune of 300million dollars in legacy debt. After an initial payment of 250million cedis, made to banks, the Ministry of Finance and Bank of Ghana as well as the Ghana Association of Bankers made an agreement on a restructured road map towards clearing this debt. Energy sector utilities are facing financial challenges which are affecting their viability necessitating a restructuring and priority repayments of their debts.

Currently, 2.3 billion Dollars of outstanding debts is owed by government to the energy sector. The government plans to issue a 15-year bond to settle these debts. This will relieve the pressure on State Owned Enterprises (SoEs), private companies who owe banks and energy suppliers. The bond is expected to cover all liabilities and will be serviced with Energy Sector Levy Act (ESLA) revenues. Thus, these companies will become stronger financially, as well as more competitive.

Impact on Private Sector

Debts owed by government is cited as a major threat to the energy sector growth. The provision of the bond will allow space for energy companies to have stronger balance sheets, to grow, invest and attract investment. In general it would improve liquidity positions of BDCs and banks.

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