In Cameroon, Actis threatens to pull the plug on Eneo

In April, David Grylls, a partner in the British investment fund Actis, which holds a 51% stake in Energy of Cameroon (Eneo), sent a formal notice to Cameroon’s Prime Minister Joseph Dion Ngute demanding payment of nearly CFA186bn (around $313m), the sum representing the public sector’s debt to the energy company.

In early June, the British executive followed this up with a letter inviting the Cameroonian government to conciliate within 90 days. If no agreement is reached by the end of August, the reference shareholder will have no choice but to resort to arbitration.

Conciliation “is provided for in the concession contract, and the aim is for Actis to preserve its rights in the face of the company’s loss of value,” a source close to the matter told The Africa Report.

Hole in the treasury

According to our information, discussions between the two parties have started under the watchful eye of the minister for water and energy, Gaston Eloundou Essomba, assisted by his finance counterpart, Louis-Paul Motaze.

Each side appears to be showing goodwill – so much so that, for the moment, the trend seems to be in favour of a compromise. But the initiative has not been as well-received by certain Cameroonian officials, who view the missive as an “injunction” addressed to a sovereign state.

In reality, the British fund’s main aim was to sound the alarm about the threat of insolvency hanging over the company. On 8 June, Lionel Omgba Oyono, the director of electricity at the ministry of water and energy, acknowledged this situation at a meeting with the World Bank.

The net cash position of the electricity producer and distributor plunged by 480% between 2017 and 2022, to stand at -113.1bn CFA francs for the past year, which means it is fast-approaching bankruptcy. Its working capital has fallen by 62.4% over the past five years, from -117bn to -190bn CFA francs.

Eneo is unable to generate enough income to meet its commitments. “This situation is partly attributable to suboptimal internal governance, particularly when it comes to reducing costs,” according to a senior civil servant familiar with energy issues.

The company has found itself obliged to take out short-term loans from local banks to keep its head above water, causing outstanding cash loans, at six months’ maturity, to rise by 267.7% over the past five financial years.

Repaying loans

Of the CFA31bn that Eneo collects each month, 60% (CFA18.6bn) is used to repay short- and medium-term loans, with the remainder divided between internal charges and taxes.

As a consequence, Eneo can no longer pay its bills. Its debt to suppliers – mainly other energy producers and the electricity-transmission company – increased by 122.5% over the period, to reach CFA336bn by the end of 2022. At that time, the energy company’s total debt stood at CFA700bn.

This situation has plunged the sector into a structural financial imbalance, to the tune of -29bn CFA francs in May alone, forcing the State to support its public creditors, such as the Société Nationale de Transport de l’Electricité, the Electricity Development Corporation (manager of the 211MW Memve’ele dam), the Société Nationale de Raffinage, and Hydro Mekin (operator of the Mekin dam), with repercussions for public finances.

The budgetary consequences will be felt all the more as Eneo’s insolvency towards suppliers will force Nachtigal Hydro Power Company, the EDF subsidiary dedicated to the eponymous 420MW dam, to activate the security guarantee (worth CFA10bn per month) put in place by the State for this project as soon as the first megawatts are produced, in 2024. This is because the electricity purchase contract obliges Eneo to pay the bill for the energy produced at Nachtigal, whether or not it is consumed.

Rescue plan

However, the energy company has not been able to raise the CFA210bn from various donors, including the World Bank’s International Finance Corporation, to upgrade the distribution network to accommodate all of this surplus capacity.

“Failure to mobilise these resources will undoubtedly compromise the smooth integration of Nachtigal into the distribution network. It is becoming urgent for the sector to invest in distribution to meet pressing industrial demand of more than 216MW, identified mainly in the city of Douala,” Essomba said at the meeting with the World Bank.

The Bank has decided to come to Cameroon’s rescue by granting CFA180bn to implement a three-year emergency plan, with one of the specified aims being to save the company from imminent bankruptcy. Among other things, this involves restructuring the company’s debts to banks and suppliers, and assessing the value of its shares with a view to a possible buyout of Actis’s part.

As revealed by Africa Business+ on 18 July, Actis is increasingly expressing its desire to leave, following the failure of negotiations with the local consortium CNPS-SNH that brings together Cameroon’s public pension fund and the national hydrocarbons corporation. However, the Bretton Woods institution is calling for the energy company’s main shareholders to come to an agreement before this can happen.