Respite for Tanesco , TPDC as Sh5 trillion debt is converted into equity
Friday, October 28, 2022
By
Dickson Ng’hily
The government has come to the rescue of Tanesco and Tanzania Petroleum Development Corporation (TPDC) by converting their debts of about Sh5 trillion into equity.
The move is meant to clean the balance sheet and build the parastatals’ capacity.
While for Tanesco, the government borrowed for various power projects, for TPDC, it was a loan extended to the government by Exim Bank for the construction of natural gas pipeline from Mtwara to Dar es Salaam for electricity generation.
Energy minister January Makamba told The Citizen that the debt-to-equity swap did not entail any cash transfer from government to Tanesco and neither did it impede on government debt.
On the contrary, by cleaning the balance sheets of the two parastatals, Mr Makamba said the government was providing the duo with a fresh start to enable them to compete effectively in the existing business environment.
“Of course, there is a general misconception that the government has taken the debt and thus the national debt becomes heavier than it was before. This is not the case. In fact, the debt appeared in two accounting books, that of Tanesco and the government,” he said.
He said when the country borrows for a transmission line, it becomes a government liability, although the money was channeled to Tanesco as an investment, thus appearing in Tanesco’s books as a loan.
“We said it doesn’t need to be that way because you have one debt that appears in the Tanesco’s as well as in the government books. It is an accounting issue so the government decided to clean that of Tanesco without adding any burden to the national debt,” Mr Makamba explained.
Furthermore, the minister stated that the move was never intended to be a free ride because Tanesco as a company had approximately 43 percent of its shares unassigned, and the government would have them, making it a fully government-owned firm.
“Practically speaking, the government was a sole owner of Tanesco but 43 percent of shares were unassigned, so we believe this is transformational. We have been trying to achieve this for the last 10 to 15 years, without success,” Mr Makamba expounded further.
According to him, given the proliferation of financial instruments and given its massive financial needs, the move will give Tanesco flexibility to find resources to fund its projects. The flexibility will not only be related to financial resources but also in terms of the cost of funding.
“With such an arrangement, you are able to borrow cheaply as your balance sheet is good. That is to say, if your balance sheet is clean, you become a leader in negotiations, and you can reject an offer instead of being bullied by the lender,” he pointed out.
According to the minister, with a clean balance sheet, lenders will not hesitate to come to meet the parastatals’ financial needs.
“More importantly, when we do these IPPs [Independent Power Productions] and we give people PPAs [Power Purchasing Agreements], we’ve seen them demand a government guarantee. In fact, they didn’t trust Tanesco to pay for the electricity due to its ‘dirty’ balance sheet,” he said.
Mr Makamba further noted that it had become difficult to issue more PPAs as much as was needed due to the current government policy of declining to issue such guarantees.
But with the lighter balance, the minister was of the view that Tanesco would be more than able to guarantee payment for its IPPs and PPAs without the government acting as its guarantor.
When asked how the government was going to ensure Tanesco’s financial sustainability, Mr Makamba said: “At a certain level of growth, capital injection should only serve as equity, not necessarily as a liability.”
Adding: “Therefore, any future capital injection from the government into Tanesco will be treated as an investment, because at the end of the day, the government is entitled to its dividend.”
Secondly, he explained that Tanesco will need better financial management, especially with new borrowing obligations that are not government debt, by applying more due diligence in the procurement of financing, as cheap financing models are at its disposal.
When asked if the debt switching model could be extended to other government parastatals that, according to the Controller and Auditor General (CAG) reports, were making losses due to huge debt burdens.
Mr Makamba declined to comment saying he was only responsible for those that were under his ministry.
And for the TPDC, the minister said: “The move will make it easier for TPDC to implement its impending participation in the LNG project with ECO stake, so this is a good move that the government has agreed to do.”
“Given the upstream assets that we’re looking to have TPDC’s participation in, this will allow Tanesco to become a partner, thus sourcing funds for the said assets,” he said. According to him, for upstream assets, the government was planning to issue two to three licences to TPDC.
These licences include North Mnazi Bay blocks 1-41(b), 41(c), and Songosongo, which have been allocated exclusively to TPDC and that if their balance sheet was strong, the parastatal would be able to enter into better partnerships.
When The Citizen wanted to know if the debt-equity-swap would change the autonomous nature of Tanesco and TPDC, and whether the arrangement would give the state an entry power into the daily running of the said companies, Mr Makamba said: “On the contrary, challenges to the autonomous were heavy financial dependence and lack of flexibility in project funding.”
According to him, the switch would, therefore, provide the said firms with funding options, as they won’t need to request funding from the government given the fact that their respective boards were entitled to make independent financial decisions provided these were prudent.
According to a recent presentation by Tanesco’s managing director, Maharage Chande, his firm’s debt ratio stood at 80 percent, which meant it couldn’t attract new investment as prospective investors and lenders wouldn’t wish to inject funds into an entity in that financial state.
“Our balance sheet also indicates that 80 percent of the company’s assets resulted from borrowing. This situation shys away both the investor and the lender from investing or funding,” he explained.
By June this year, Tanesco’s total liability stood at Sh2.4 trillion.
He said: “By converting the company’s debt into equity, the ratio between assets and debt, as well as capital investment and debt, will be improved to the ratio of 27:73 and 37:63, from the current ratio of 20:80 and 25:75, respectively.”
Speaking during a tour of Tanesco’s Kinyerezi plants in Dar es Salaam in 2019, Parliamentary Public Investments Committee (PIC) chairman Raphael Chegeni was quoted as saying Tanesco’s debts were huge and a burden to it, proposing that the government should shoulder the loans’ repayments.
At that moment, Tanesco owed its suppliers – including Independent Power Tanzania Limited (IPTL), Songas, Pan African Energy Tanzania (Paet) and Tanzania Petroleum Development Corporation (TPDC) – a total of Sh950 billion. The power firm also owed Sh442 billion in bank loans secured for operational activities.
Then Tanesco MD Tito Mwinuka told committee members that his firm had borrowed Sh408 billion for the purchase of heavy furnace oil for power generation, while Sh34 billion was borrowed from the TIB Development Bank to compensate people who were moved to make way for the construction of a natural gas pipeline to Kinyerezi.
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Serikali imeshabeba tena mzigo wa madeni ya biashara wa Trillion 5 ya wizara ya nishati iliyokuwa imedhamini, god knows where else.
Honestly January sio kiongozi mmbaya ni mtu mwenye mawazo mazuri mara nyingi ila yanahitaji polishing ya wataalamu kufikia hazma vinginevyo ni recipe for disaster kwenye uchumi.
Halikadhalika uelewa wake wa biashara ni mdogo mno na urafiki ni shida sio mtu wakupewa nafasi kubwa za nchi kwa sababu ana washauri wake binafsi ambao ni vihiyo kweli ukisikiliza logic ya defence kwenye hoja zake.
Ukisoma tu hayo maelezo yake anayotoa to justify debt swap with the remaining equity kwa confidence unaona huyu mtu aelewi jinsi consolidation ya madeni serikali inavyofanyika nor how reserves shares work.
Issue kubwa zaidi hapa ni kulea uzembe watu wanachukua mikopo ya kibiashara kwa dhamana ya serikali wanayotakiwa kulipa wenyewe, hela wanakula na biashara zenyewe aziendeshwi efficiently; halafu wanamlisha bi tozo matango pori mzigo anawatupia wananchi.
Ni hivi ukweli ni kwamba don’t encourage huyu mama kuendelea, god knows hakina nani tena wengine madeni yao ya biashara washarudisha serikalini ili wakope tena kufanya uwekezaji wa ovyo.
Hakuna mtu mwenye chuki personal na raisi hana uwezo wa kuendesha nchi na watu wanaichezea sana kwa sasa kwa gharama za watu wasio na sauti kupitia tozo na kukosa huduma muhimu za jamii.
