Government bails out VRA with GH¢2.2bn from Energy Sector Levy

The government says it is taking steps to pay the GH¢2.2 billion debt the Volta River Authority (VRA) owes local banks and its suppliers.

Under the arrangement, the VRA legacy debts will be paid from a special account opened to receive the proceeds of the Energy Sector Levy.

Fifty per cent of the funds accruing under the Power Generation and Infrastructure Support sub-account under the Energy Sector Levies Act (ESLA, 2015) will be used to retire the legacy debts.

A statement issued by the VRA said the government would use the remaining 50 per cent of the funds from the levy “plus the current enhanced ‘business-as-usual’ receivables of the VRA, all of which is to be escrowed into a centrally managed account, to service trade and other creditors of the power sector”.

Debt restructuring The latest move is part of a debt restructuring agreement being worked out by the government and the banks. The VRA’s debt burden has increased over the past several years due to a combination of operational and financial difficulties.

The government, in its quest to ensure fiscal sustainability and reduce the extent to which it is required to grant financial support to state-owned entities, has embarked on an exercise to strengthen its balance sheets.

The final restructuring package includes 3.5 per cent rebate of the gross indebtedness of the VRA to lending banks as of May 31, 2016 and an extension of the maturity of the cedi and US dollar denominated components to a maximum of five years, with an option to accelerate repayment within three years.

Additionally, the restructuring allows the government/VRA to achieve a maturity transformation (repayment period) from overdue status to up to five years.

The agreement is also expected to give the VRA a reduction in the interest rate for the cedi component of its debts to 22 per cent per annum from an existing average of 32 per annum, to be reviewed after six months, and that of its dollar denominated interest rate from 11 per cent per annum to 8.5 per cent per annum.

The statement said the agreement reached with the lenders, therefore, represented a significant milestone in strengthening the balance sheet of the company.

VRA’s strong position With a stronger financial profile, greater fiscal discipline and continuous operational improvement, it said, the VRA would be adequately positioned to fulfil its mandate to the people of Ghana.

Commenting on the restructuring package, the Minister of Finance, Mr Seth Terkper, said: “It is important, first of all, to note that the energy sector levies are being applied as purposed and approved by the Parliament of Ghana.”

Power sector agencies Mr Terkper, who is also the acting Minister of Power, said the approach ensured that there was absolutely no impact on the country’s debt stock or further burden on taxpayers. “By this arrangement, the government is taking on its responsibility to support power sector agencies, including the VRA, to fully repay all legacy debts owed to the domestic lending banks and trade suppliers.

“The immediate impact of this arrangement is to strengthen the balance sheet of the VRA and enhance its ability to arrange more structured trade lines to support its day-to-day operations under a well-managed escrowed receivables structure which will avoid build-up of further unsustainable debt,” he said.

Mr Terkper said the government expected the lending banks to adopt the VRA’s debt restructuring arrangement which was also intended to relieve and improve the quality of their lending assets and the credit standing of energy sector state-owned enterprises (SOEs). The approach, he said, demonstrated the government’s commitment at all times to honour its statutory obligations.

VRA’s problems The VRA is a 100 per cent state-owned power generation utility. The authority operates a total installed electricity generation capacity of 2,434MW from thermal and hydroelectric sources.

The VRA’s indebtedness makes it difficult for the company to pay millions of dollars owed Ghana Gas, the West African Gas Pipeline Company (WAPCo) and the several independent power producers in the country. It has also struggled to raise letters of credit to lift crude into the country to power the various plants.

As of July 5, 2016, the VRA owed Ghana Gas $350 million, while it owed WAPCo $181 million as of October last year. The company’s indebtedness is basically because of the inability of the Electricity Company of Ghana (ECG), the Volta Aluminium Company (VALCO) and the Independent Power Producers (IPPs) to pay for the authority’s services.