Government has commenced moves to raise GHS300 million from some domestic banks in the country to restructure the debt of the Volta River Authority (VRA).
A statement from the Ministry of Finance copied to Citi Business News explained that “government, acting through its Ministry of Finance and Ministry of Power is pleased to announce that it is progressing towards a successful conclusion in the restructuring of a substantial portion of the debts owed by the VRA”.
The agreement when concluded is expected to comprehensively restructure VRA’s balance sheet.
According to the statement, the Lenders were led by representatives of the Ghana Association of Bankers (“GAB”) and the Chief Executives of the Lending Banks in the negotiations with the Finance Ministry.
Final Restructuring packages
As part of the final restructuring packages, the VRA was expected to undertake a rebate of 3.5% of the gross indebtedness of the company to lending banks as at May 31, 2016.
In addition, there is an extension of the maturity of the Cedi and US dollar denominated components of the debt to a maximum of five (5) years, with an option to accelerate repayment within 3 years.
By this, the restructuring will allow government to achieve a maturity transformation (repayment period) from overdue status up to five (5) years.
Also, government has secured a reduction in the interest rate for the Cedi component to 22% per annum, from an existing average of 32% per annum to be reviewed after six (6) months.
On the US dollar component of the debt, government has secured a reduction in the interest rate to 8.5% per annum from an existing average 11% per annum.
According to the statement, the VRA Legacy Debts totalling 2.2 billion cedis will be repaid from a special account opened to receive the proceeds accruing under the Power Generation and Infrastructure Support sub-account, under the Energy Sector Levies Act (ESLA, 2015).
By this, an estimated 50% of the proceeds are expected to be used to retire the debts pursuant to the restructuring of the debt.
“Government will apply the other 50% of the proceeds under ESLA plus the current enhanced “business-as-usual” receivables of VRA all of which is to be escrowed into a centrally-managed account to be used to service trade and other creditors of the power sector,” the statement explained.
Govt applying ESL on purpose
Commenting on the nature and terms of the restructuring package, Finance Minister, Mr. Seth Terkper stated that the Energy Sector levies are being applied as purposed and approved by the Parliament.
Mr. Terkper who doubles as the Minister of Power explained that the approach will ensure that there is absolutely no impact on the country’s debt stock or further burden tax payers.
“By this arrangement the government is taking on its responsibility to support the power sector agencies including VRA, to fully repay all legacy debts owed to the domestic lending banks and trade suppliers,” he said.
The immediate impact of this arrangement is to strengthen the balance sheet of 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 urged lending banks in the country to adopt the VRA debt restructuring arrangement which is also intended to relieve and improve the quality of their lending assets and the credit standing of the energy sector State-Owned Enterprises (SOEs).
By: Lawrence segbefia/citibusinessnews.com/Ghana