Businessday :: News you can trust

The recent Central Bank of Nigeria ’s (CBN) removal of some banks’ chief executives over their debts overhangs will certainly take its toll on various sectors of the economy. Even if the action was genuinely intended, the adverse consequences of such moves have much more far-reachingimplications than envisaged. 
Two most critical areas of the economy have fallen victim to this action. These are the downstream sector of the petroleum industry, a sector to which the banks have high exposures that have resulted in the non-performing loans. 
The power sector is the first casualty as government’s planned 6000 megawatts of electricity by December this year has become estranged. 
This is because the manufacturers of some of the equipment meant for some of the National Integration Power Projects (NIPP) have informed their Nigerian customers that they will stay action on the equipment they were asked to manufacture, pending the time the dust raised by the action settles down. 
One of the companies handling the projects, Rockson Engineering Limited, was said to be owing N36.9 billion as alleged by the CBN. However, the figure the company has raised serious objection about, saying it is only owing N14.423 billion and not what the CBN claimed. 
Speaking recently in Lagos, chairman of the company, Aniete Okon, said “for avoidance of doubt, our reconciled and mutually agreed commitment with Intercontinental Bank is N14, 423, 291, 589, 041 (fourteen billion, four hundred and twenty-three million, two hundred and ninety-one thousand, five hundred and eighty-nine and forty-one kobo.” 
According to Okon, the exposure to the bank derives directly from the provision of credit facilities to substantially fund the letters of credit for turbines and balance of plant equipment for the execution of Federal Government’s NIPPs, comprising the construction of power stations at Alaoji, Gbarain, Egbema, and Omoku, over which it invoices on certified progress and stand at nearly $800 million. 
The company’s chairman therefore noted that to classify the status of it account with Intercontinental Bank as non-performing was to say the lest, and very misleading, adding that the company had completed 70 percent of it site erection and construction services without receiving any payment from the Federal Government. 
But more depressing was the bombshell the managing director of Rockson Engineering, Johnson Arumemi, dropped when he disclosed that the manufacturers of some of the equipment that were to be used at the power plants had called to say that they were stopping work on the equipment. 
Because their confidence in the letters of credit (LC) opened on the company’s behalf is doubtful in view of what is currently going on in the country’s financial sector, according to Arumemi, he does not think that his company can meet any bank for money to complete the NIPPs as they would tell you to go and meet the Federal Government to collect the needed money. We can only work with what we have. 
The NIPPs suffer serious funding problem before the House of Representatives probe of the contracts, and the probe stalled works on the projects for a long while. 
He further stated that for a long while the government did not pay for the NIPPs before they were rocked by probes carried out by the House of Representatives Committee on Power, which made some grievous allegations that money was paid and the contractors bolted away with the money meant for the projects. 
Just as the dust raised by the probe was about to settle, the CBN came up with its non- performing debt saga, which would further delay the projects. To this end, the government has failed on its part to fulfil it own part of the bargain. 
“We were given letter of credited by the CBN which was partially funded. We handed over the letter of credit to Intercontinental Bank as collateral and the bank open another letter of credit through another arrangement with PNB Paribas. The bank gave us money for site construction including Bank PHB too, which gave the company money for site construction,” he disclosed. 
When President Umaru Yar’Adua administration came in, it stopped the funding and just recently Vice President Goodluck Jonathan-led committee on Power, which includes some of the state governors visited the projects and promised to pay some $230 million to the company within two weeks. The two weeks became four months. And just in June this year, the government decided to open another letter of credit, but there was delay in releasing the $230 million, which was approved around July, and to draw done this amount was a big problem. 
“The company has not received one kobo from the Federal Governments for the jobs done on the sites of the projects for the construction and erection services and transportation. 
The crossing of Imo River with the turbines has not been paid for by the government.” Foreign banks may have started to cancel credit lines to some Nigerian companies on account of what is happening in the financial sector. 
Two managing directors of oil and power companies confirmed this development, saying they have received several calls from their business partners across the world telling them about the misgiving the banks in their countries have about the integrity of the letters of credits that have emanated from Nigeria . 
For instance, PNB Paribas has already suspended transaction with Intercontinental Bank, claiming that it is not sure of the situation in Nigerian financial sector. 
The other strategic segment that would suffer as a result of this action is the downstream subdivision of the petroleum sector. The operators of the sector would now have limited access to fund and thereby shrinking the supply of petroleum products to the country. 
It would further worsen the unemployment situation in the country, as the small scale businesses that depend on using petroleum products for their businesses would have to pay more.