Impact Analysis of Implementation of PSRP on 2016 Financials. 1

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Alexander Fields
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1 Impact Analysis of Implementation of PSRP on 2016 Financials 1

Introduction: Power Sector Recovery Program (PSRP) Key Thrusts of The Plan:

obligations Implement interventions required to minimize subsidy going

tariff review, ATC & C loss reduction) Addressing transmission infrastructure

2 Introduction: Power Sector Recovery Program (PSRP) Key Thrusts of The Plan: CBN/NBET upstream payment assurance program Resolution of historic obligations Implement interventions required to minimize subsidy going forward (e.g. tariff review, ATC & C loss reduction) Addressing transmission infrastructure gaps Addressing pipeline vandalism Restore sector financial viability DISCO recapitalization Dimensioning of accumulated deficits Identify funding sources etc 2

Retrospective Impact Evaluation on 2016 Financial Statements A scenario analysis was conducted to assess the impact of these key changes retrospectively

Income statement, balance sheet and cash flows in the light of key assumptions, viz: Recovery of tariff shortfalls: this analysis assumed recognition of

It also supposes collection on the full amount in 2016 Receipt of 100% MDA debt Utilization of the CBN Fund (est.

3 Retrospective Impact Evaluation on 2016 Financial Statements A scenario analysis was conducted to assess the impact of these key changes retrospectively on AEDC s 2016 financial statements. This is predicated on the assumption that the PSRP policy changes had been effected over that period. Income statement, balance sheet and cash flows in the light of key assumptions, viz: Recovery of tariff shortfalls: this analysis assumed recognition of 75% of estimated tariff shortfalls (reported as billion in the PSRP statement). It also supposes collection on the full amount in 2016 Receipt of 100% MDA debt Utilization of the CBN Fund (est. at 27 billion) Write off of interest on market remittance shortfalls Funding the Letter of Credit in favour of the Bulk Trader (NBET) Improvement in settlement of market liabilities Please Note: All other variables were essentially kept constant 3

2016 Income Statement (Abridged) ' '000 Audited Statement PSRP Scenario Solution Scenario Revenue 59,518,821

410,865 Administrative Expenses (31,564,833) (19,307,576) Operating Profit/(Loss) (38,124,460) 7,780,783 Finance

Before Minimum Tax (50,113,134) 6,692,505 Minimum Tax (147,634) (147,634) Loss Before Income Tax (50,260,768)

the recognition of 75% of identified tariff shortfalls With the assumed improvement in collections (i.e. expected 100%

adjusted from 14.1 billion to 2.1 billion (85% reduction) Reduction in finance cost following a write down on 10.

4 2016 Income Statement (Abridged) ' '000 Audited Statement PSRP Scenario Solution Scenario Revenue 59,518,821 93,166,807 Cost of Sales (66,489,313) (66,489,313) Gross Profit/Loss (6,970,492) 26,677,494 - Other Income 410, ,865 Administrative Expenses (31,564,833) (19,307,576) Operating Profit/(Loss) (38,124,460) 7,780,783 Finance Income 255, ,257 Finance Cost (12,243,931) (1,343,535) Net Finance Cost (11,988,674) (1,088,278) Profit/(Loss) Before Minimum Tax (50,113,134) 6,692,505 Minimum Tax (147,634) (147,634) Loss Before Income Tax (50,260,768) 6,544,871 Income Tax Loss for the Year (50,260,768) 6,544,871 Revenue was adjusted by about 34 billion representing the recognition of 75% of identified tariff shortfalls With the assumed improvement in collections (i.e. expected 100% payment by the Govt of tariff shortfalls and full recovery of MDA debt), Impairment on trade and other receivables was adjusted from 14.1 billion to 2.1 billion (85% reduction) Reduction in finance cost following a write down on 10.9 billion interest on market remittance shortfalls Juxtaposition of audited statement and PSRP scenario. Key deltas have been highlighted and explained 4

2016 Balance Sheet ' '000 Audited Statement Solution PSRP Scenario Asset PPE 84,088,819 84,088,819 Intangible Asset 32,816 32,816 Prepayment 11,278 11,278 Non-current Asset 84,132,913 84,132,913

12,135,564 Total Asset 114,384,472 96,268,477 Equity Share Capital 5,000 5,000 Retained Earnings (32,415,173) 24,390,466 Revaluation Reserve 18,577,690 18,577,690 Total Equity (13,832,483)

2,172,939 Deferred Income 609,682 609,682 Trade and Other Payables 121,693,141 19,771,507 Current Tax Liabilities 925,254 925,254 Loans & Borrowings 1,288,919 1,288,919 Current Liabilities

5 2016 Balance Sheet ' '000 Audited Statement Solution PSRP Scenario Asset PPE 84,088,819 84,088,819 Intangible Asset 32,816 32,816 Prepayment 11,278 11,278 Non-current Asset 84,132,913 84,132,913 Inventories 410, ,800 Trade Receivables 27,167,597 4,051,602 Prepayment 199, ,052 Cash and Cash Equivalents 2,474,110 2,474,110 Fund Placement (LC) 5,000,000 Current Asset 30,251,559 12,135,564 Total Asset 114,384,472 96,268,477 Equity Share Capital 5,000 5,000 Retained Earnings (32,415,173) 24,390,466 Revaluation Reserve 18,577,690 18,577,690 Total Equity (13,832,483) 42,973,156 Liabilities Deferred Income 808, ,139 Loans & Borrowings 718, ,881 CBN Fund (Liability) 27,000,000 Non-current Liabilities 1,527,020 28,527,020 Provisions 2,172,939 2,172,939 Deferred Income 609, ,682 Trade and Other Payables 121,693,141 19,771,507 Current Tax Liabilities 925, ,254 Loans & Borrowings 1,288,919 1,288,919 Current Liabilities 126,689,935 24,768,301 Total Liabilities 128,216,955 53,295,321 Total Equity & Liabilities 114,384,472 96,268,477 Assumed FG settlement of Tariff Shortfalls and full MDA debt repayment amounting to a total of 56.7 billion Funding the cash collateral obligation for the establishment of the Letter of Credit (LC) in favour of NBET Reversal of negative shareholder equity with improvement in retained earnings Converting portion of trade payables from current to noncurrent liability Reduction as a result of interest write off, access to CBN fund and settlement of about 60% of outstanding market liabilities 5

2016 Cash Flow Statement (Abridged) ' '000 Audited Statement Solution PSRP Scenario Cash flows from Operating Activities Profit/(Loss) for the Year (50,260,768) 6,544,871 Adjustments for Non-Cash,

(4,960,864) Acquisition of intangible assets (53,405) (53,405) Interest received 9,455 9,455 Funding Letter of Credit (5,000,000) (5,004,814) (10,004,814) Cash flows in Financing Activities Proceeds

836,049 27,836,049 Net Cash 521,508 521,508 Cash at Year Beginning 1,771,442 1,771,442 Effect of movement in exchange rate 181,160 181,160 Cash at Year End 2,474,110 2,474,110 Net Profit reported in

6 2016 Cash Flow Statement (Abridged) ' '000 Audited Statement Solution PSRP Scenario Cash flows from Operating Activities Profit/(Loss) for the Year (50,260,768) 6,544,871 Adjustments for Non-Cash, etc 29,932,163 17,674,906 (20,328,605) 24,219,777 Changes in Working Capital 25,018,878 (41,529,504) 4,690,273 (17,309,727) Cash flows from Investing Activities Acquisition of PPE (4,960,864) (4,960,864) Acquisition of intangible assets (53,405) (53,405) Interest received 9,455 9,455 Funding Letter of Credit (5,000,000) (5,004,814) (10,004,814) Cash flows in Financing Activities Proceeds from Loans and Borrowings 1,172,550 1,172,550 Interest payment (69,316) (69,316) Repayment of bank loan (238,577) (238,577) Repayment of intercompany loan (28,608) (28,608) CBN Fund 27,000, ,049 27,836,049 Net Cash 521, ,508 Cash at Year Beginning 1,771,442 1,771,442 Effect of movement in exchange rate 181, ,160 Cash at Year End 2,474,110 2,474,110 Net Profit reported in the Income Statement Change in Impairment loss on trade receivables Net cash outflow following improved collections and increased payment to the market Funding the cash collateral obligation for the establishment of the Letter of Credit in favour of NBET 6

Summary of Outputs Below are key outputs from the PSRP Scenario: Reversal on loss position with resultant Gross and Net Profit reported Increase in

7 Summary of Outputs Below are key outputs from the PSRP Scenario: Reversal on loss position with resultant Gross and Net Profit reported Increase in collections with expected loss reduction Improved practice of settlement of outstanding market liabilities Positive Shareholder Equity 7

8 Thank You 8

Executive Summary Federal Government Economic Recovery and Growth Plan Power Sector Reforms Power Sector Constraints and Challenges

Executive Summary Federal Government Economic Recovery and Growth Plan Given the critical role of power supply in socio-economic development and the development of all sectors of Nigeria s economy, the