A Review of the Nigerian Energy Industry

Nigeria plans $1bn Eurobond to fund gas, power projects

26 August 2012, Sweetcrude, LAGOS – NIGERIA is planning to issue Eurobond amounting to $1 billion next year to finance various projects in its gas and power sectors, Minister of Finance and coordinating minister for the Economy, Dr Ngozi-Okonjo Iweala, has said.

“We are thinking next year of an infrastructure bond to help our power and gas sector,” she told Reuters at the weekend. “Anywhere from $500 million to $1 billion. We are trying to see if we can do something unique by having a portion as a diaspora bond.”

A Eurobond is an international bond that is denominated in a currency not native to the country where it is issued.

The move to issue the Eurobond is aimed at taking advantage of Nigeria’s likely inclusion in a JP Morgan emerging market index.
JP Morgan said on August 15 that Nigeria is likely to be included in JP Morgan’s Government Bond Index – Emerging Markets (GBI-EM) from October , which the minister said would open up fresh opportunities for issuance.

Okonjo-Iweala said in an interview with Reuters that the long-term target of government was to scrap the Excess Crude Account, ECA, and replace it with a planned sovereign wealth fund.

She pointed to Nigeria’s improved credit ratings in the past year, with Fitch upgrading the country to BB- and Standard & Poors upgrading its rating outlook to positive from stable.

Nigeria has over the years earned a reputation for reckless fiscal spending and chronic corruption, ills which Okonjo-Iweala was brought back into the country from her former World Bank job to cure.

The minister said efforts had been made to “steady the ship” since she took office a year ago, including reducing the fiscal deficit to 2.85 percent of GDP this year from 2.95 percent last year, with a view to cutting it down to 2.21 percent in 2013.

Another achievement was boosting the cash in the ECA to $7 billion from around $4.4 billion a year ago, she said.

The long-term aim is to replace the account with a new sovereign wealth fund, but in the meantime they will run side-by-side, she added.

“Ideally, you would want to fold the two into one and that is our ultimate objective but for now I think the two in the short-medium term will run side-by-side until everybody gets comfortable with the sovereign wealth fund.”

The fund has been passed into law, but it faces stiff opposition from state governors who fear it will mean less money for them.

The ECA is currently distributed to local, state and federal governments, but the sovereign wealth fund will stay with the central government to save for future generations, fund infrastructure and defend the economy against commodity price shocks.

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