CEC Africa: Hopes High on Sector Reform
Chairman CEC Africa Siyanga Malumo

Siyanga Malumo is an optimistic man. The power sector veteran and Chairman of CEC Africa makes a compelling case for shareholders to remain optimistic in his letter to shareholders in the CEC Africa 2017 annual report. The chairman is placing most of his faith in the fact that their Nigerian story has an opportunity of a turnaround based on recent developments on energy coming out of the federal government.

In 2017, in a bid to reboot the Nigerian energy sector, the federal government announcement its desire to reform the energy sector. You will recall that this is a sector that has lamentably struggled to meet the ever growing demand for “lights-on” in Nigeria. Factors ranging from unexplored gas reserves to militia attacking oil pipeline supplies have had an adverse impact on the energy economy. Worse still, energy finance has been inconsistent in the past.

Former President Goodluck Jonathan made an attempt to initiate reform through the 2010 privatization of the industry. However, according to the Financial Times, subsequent moves such as selling off state-owned assets and not reinvesting the money into the sector was the beginning of the financial drain on it. Therefore, it is no surprise that industry players such as Siyanga are placing their bets on this recent re-boot.

According to the World bank, a key milestone of the Power Sector Reform Program (PSRP) is the sector “Reset”, which will define new conditions for the sector companies based on the current situation of the sector. The “Reset” is important because it is part of the process of determining the power sector Revenue Requirement (RR). The RR in turn determines the profitability which Siyanga (and other Independent Power Producers) is keen on getting for Abuja Electricity Distribution Company Plc (AEDC is that asset owned by CEC Africa).

Meanwhile, CEC Africa spent a substantial amount of effort to further restructure the US Dollar denominated acquisition finance facility that was obtained from UBA to finance their acquisition of 60% of AEDC through KANN Utility Company Limited (KANN). One can sense the pain of the interest payments that CEC Africa has continued to suffer from this facility. Gross profit and EBITDA continue to be in negative territory for a second financial year in a row.

In 2017, their recorded net loss stood at $312.9 million (compared to $347.7m in 2016). According to the CFO Ijemoma Okeke, the group incurred a net loss for the year ended 31 December 2017 of USD270 million (2016: Loss USD91.8m) and at the date the group’s total liabilities exceeded total assets by $318.6m (2016: $48.5m) and the current liabilities exceeded its current assets by $631m (compared to $337.6m in 2016). The moment liabilities exceed assets, equity and the ability to be a going concern come under threat. This is echoed in Okeke’s statement where she outlines the board’s strategy for the company digging itself out of the financial quagmire that the Nigerian energy sector has placed on the company until now. However, she believes if the following key activities take placed as specified in the sector reform plans, their company will be able to turnaround:

  1. Eliminate accumulated deficits (2015-2017)
  2. Dimension and commit to fund future sector deficits (2018-2021)
  3. Ensure payment of MDA debts and implement mechanisms for future bills
  4. Increase electricity access by implementing off grid renewable solutions
  5. Develop and implement a foreign exchange policy for the power sector
  6. Make electricity market contracts effective, and
  7. Implement an end user tariff trajectory ensuring cost reflective tariffs are achieved over 5 years.

Conversely, should the above to take place, the viability of the CEC Africa Nigerian story could be jeopardy as Okeke herself admits that doubt will be cast on the company’s ability to continue as a going concern.

For now, Siyanga and his team will be counting on the federal government to see through the planned reforms and hope that investors in CEC Africa are patient enough to see this through. It is understandable that the macro forces of competition are uncontrollable for CEC Africa.

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