The Ministry of Finance, the Bank of Ghana (BoG), and the Ghana Bankers Association have announced plans to pay the legacy debt owed in the power sector.
According to the Ministry of Finance, government has arranged with the Bank of Ghana to create an escrow account to transfer 250 million cedis to settle part of the debts owed to 12 banks in the country.
The banks include Ecobank, Stanchart, Unibank, Zenith bank, GT bank, UBA, UMB, CAL bank, ACCESS bank, Stanbic bank, Fidelity bank, First Atlantic bank, Ghana International bank among others.
Speaking at a press conference in Accra, the Minister of Finance Seth Terkper disclosed that government owes the banks, approximately 4.4 billion cedis, after negotiating the interest rate on the dollar component from 11 percent to 8.5 percent, while the cedi component was reduced from 30 to 22 percent.
“As I speak, government has made an upfront payment of approximately GHS250 million which will be funded by the new collections from the energy sector levies. The money is in an account with the Bank of Ghana and will be paid to the banks as planned,” he said.
Govt’s agreement with banks
Outlining some key features of the agreement with the banks, Mr. Terkper emphasized that government was able to negotiate a reduction of interest rate on the GHS component of the VRA debt from an average of 30 percent to 22 percent.
“In addition, we also negotiated for a reduction of interest rate on the foreign currency component of the VRA debt from an average of 11% to 8.50%,” he said.
In all, he stated that the reduction led to government cutting down the cost of the debt by about 300 million cedis.
He explained that repayments will be funded from a debt service account which will receive cashflows from the energy debt recovery levy and a debt service reserve as well as a proportion of VRA’s receivables.
“Proceeds of the energy debt recovery levy which are applied to VRA debts will be converted into equity on VRA’s balance sheet or could be subject to an on-lending arrangement with the government,” he added.
Placing limits on VRA
Mr. Terkper stated that government will place limits on the ability of the VRA to incur new indebtedness without express approval. “Government anticipates that this approach will be used to restructure VRA as well as the debt of other energy-sector SOEs,” he said.
He announced that government has conducted an assessment of arrears between the government and SOEs and cross-SOEs’ arrears and prepared an action plan and a timeline for their elimination.
“This will include improving the repayment the “legacy debt” to ECG in the amount of GHS728 million over five years,” he assured.
Appreciation from other bodies
On his part, the President of the Ghana Bankers Association, Alhassan Andani stated that the association is impressed with modalities set by government to use the Energy Sector Levy to pay the debt in a period of 2 to five years.
First Deputy Governor of the Bank of Ghana, Mr. Millison Narh also stated that the Central Bank contracted four reputable auditing firms to value the assets of the SOE in Energy to ascertain the viability to pay the debt in the stipulated period.
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