A Review of the Nigerian Energy Industry

Banks alone can’t fund power sector projects, says FBN Capital

Geometric-power10 October 2013, Lagos – Nigerian banks, alone, lack the capacity to provide an average of between $8 and $12 billion (N1.3 trillion – N1.9 trillion) funding required to execute projects required in the power sector in the next 10 years, the Director/Head, Project and Structured Finance, FBN Capital Limited, Patrick Mgbenwelu, has said.

Mr. Mgbenwelu said, at the 1st FBN Capital Project and Infrastructure Finance Conference in Lagos, that local banks would need to collaborate with operators of the local market funding, institutional and foreign investors (offshore liquidity providers) to source for funding for various on-going infrastructure projects in the sector.

“Funding cannot come from the banks alone” he said. “There is the need for institutional investors and foreign investment to bridge the funding gap. Greenfield Independent Power Projects (IPPs) will emerge to bridge the energy gap.”

Apart from government’s public-private partnership (PPP) policy aimed at facilitating the execution of various infrastructure projects such as rails, roads, bridges, and airports, he said Special Purpose Vehicles (SPVs) would be created as obligator for the various projects.

Mr. Mgbenwelu said funding under such an option was primarily based on future cash-flow generating capacity of the project, pointing out that in the absence of tangible asset projects could still get funding, as opposed to corporate finance funding whose funding was generally asset-backed.

The Senior Investment Officer, International Finance Corporation, Femi Akinrebiyo, commended local banks for their role so far in the power privatisation process, by taking risks and ensuring that the needed funding was available for investors.

“There is so much to be done. Where would the money come from? It has to be from the public and private sectors. More international participation is needed,” he said.

The Managing Director, FBN Capital, Kayode Akinkugbe, said Nigeria’s potentials could be unlocked through sustained infrastructure growth and development, even as the country continues to seek the transformation of the power sector through public private partnership initiatives.

He said the current power sector privatization initiatives would go a long way to bridge the gap of substantial funding required for Nigeria Independent Power Project (NIPP) and other Green Field power plants.

“Major investments in transmission lines are needed to match planned increase in Generating Companies and Distribution companies’ capacities,” Mr. Akinkugbe said.

– Premium Times

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