The shareholders of KANN Utility Company (KUC), owner of 60% shares of Abuja Electricity Distribution Company (AEDC) are enmeshed in a crisis over the shareholding structure of the company and the control and management of the $164 million distribution company they acquired from the Nigerian Government.
At the heart of this crisis are allegations of corporate deceit and fraud made against CEC Africa one of the two partners of KANN by Xerxes Global Investments Limited (XGI) the second partner.
The claims and counter claims of the parties, many of which are either backed by seemingly compelling narratives or incontrovertible evidence has industry analysts worried about the overall integrity of the company.
The crisis assumed a fresh twist following a report obtained from auditors by Xerxes about the performance of the CECA negotiated loan, which KANN acquired from UBA, to fund its payment obligations to the government for the acquisition of AEDC.
The report highlighted a number of obvious and glaring shortcomings, which have resulted in the overpayment of interest on loans by over sixty-one million dollars.
Other areas of concern include the retention of UBA Capital and UBA Plc as financial advisers to the transaction. The insertion of a clause which gives UBA the right to sell part or all of the debt “at its own discretion and without recourse and even consent from KANN.”
The facility also includes a clause which restrains KANN from seeking a facility from another bank.
The auditors further revealed among many other issues that despite the fact that facility provides a moratorium on interest, available records show that interest was “charged right from the loan offer date of 21 August, 2013”
The revelations of these strangulating conditions in a loan negotiated solely by CECA, which Xerxes claims has resulted in the payment by KANN to UBA of over $100 million in interest charges alone from the time of collecting the facility, has led Xerxes to further accuse CECA of not acting in the best interest of the company.
Coming on the heels of earlier allegations by Xerxes of CECA’s “intentional misrepresentations” to Xerxes that the grant of a UBA loan facility to KANN “…was conditional upon CECA owning 75% of the shares of the KANN,” which led to the takeover of 25% of Xerxes shares by CECA the crisis has continued to be a source of concern for industry watchers
Some analysts have expressed fears that Nigeria may be witnessing the re-creation of an Enron-like culture of corporate deceit and fraud in a company that runs the operations of an electricity company that supplies power to Nigeria’s Federal Capital Territory. Enron an energy firm in the US, which is today the synonym for corporate deceit and fraud, collapsed following the discovery of wide scale fraud in its operations.
Steve Walters an expert in the industry who is familiar with the matter opines that these issues should concern the government which must act to nip in the bud any act that could put AEDC at risk, jeopardize its operations and obstruct its capacity to deliver electricity to the people it serves.
Felix Kenani echoed a similar view as he noted that accounting figures could be misleading and that those who perpetrate corporate fraud are often those who know how to juggle the accounting figures of a company.
He recalled that until the revelations came pouring in in late 2001, nobody could ever have realized that the financial condition of Enron, which had over 20,000 employees, and operations in 40 countries was sustained by an institutionalized accounting fraud. Because its operations were based on lies, in a twinkle of an eye, those jobs were lost, public pension funds evaporated, and stocks were rendered worthless.
“The relevant agencies must act swiftly to spare Nigerians the challenges of an Enron-like experience, for the country can ill afford one. Government must understand that corporate fraud is infectious, as dishonest partners and employees eventually infect the honest ones. So if the required surgical operation is not carried out on time, to weed out or keep erring partners or employees the operations of AEDC may be jeopardized, going forward,” he said.
Efforts by Reader’s Gazette to reach Emmanuel Katepa to respond to many of the issues raised by Xerxes concerning the takeover of its shares and the UBA loan his company negotiated for KANN, proved abortive.