16 January 2013, Sweetcrude, Abuja – The Central Bank of Nigeria (CBN) plans to extend the N300 billion Power and Airline Fund (PAIF) with a view to increasing available funds for power sector projects and further create structures directly suitable to the peculiarities of the power sector.
The extension is one of the major planks of the apex’s bank and banking sector’s economic development programme for this year. It will include the size, tenors, structures, projects, collaterals and other terms in a holistic approach to further align the financial system to the critical funding requirements of the power sector.
The power sector transformation is a major thrust of Federal Government’s Transformation Agenda with a major target of generating 40,000MW by 2020.
However, it has been estimated that the power generation segment would require investments of at least $ 3.5 billion annually over the next 10 years to meet the target. The CBN launched the power sector fund in August 2010 with the objectives of addressing the critical finance needs and peculiarities and stimulate lending to the power sector.
Managed by the Bank of Industry (BOI) under the technical assistance of the Africa Finance Corporation (AFC), the power fund prioritises key power projects and provides funds at an interest rate of 7.0 per cent payable on a quarterly basis. The fund covers refinancing of existing loans and leases as well as working capital for the sector.
Impeccable sources in the know of the apex bank’s strategic financing thrust for 2013, said the extension is targeted mainly at increasing funding to the power sector but would also consider inputs from banks and other stakeholders on other structures and terms that would further improve the catalytic impact of the fund. The sources noted that the extension of the power fund was in line with the responsibilities of the apex bank under the founding charter of the power fund.
Under the charter of the power fund, the CBN is saddled with articulation of clear guidelines for the implementation of the fund, provision and determining of the limits of funds, specification of the lending rate and review of review of the fund guidelines as may be necessary from time to time. This initiative could help to quickly unlock the potential benefits of the power sector reform.
The power fund’s objectives include accelerated development of electric power projects, especially in identified industrial clusters, serving as credit enhancement instrument to improve the financial position of banks, leveraging additional private sector investments in the power sector and down the line, improved power supply, employment, and enhanced living standard for Nigerians through consistent power supply.
Eligible projects and companies for the power funds cover any corporate entity, duly registered in Nigeria, involved in electricity power supply value chain that includes power generation, transmission, distribution, gas- to-power projects and associated services.
Also, eligible projects can be promoted by private or public sector sponsors or a combination of both but must be structured either as profit-oriented business or a public service, provided that contracted cash- flows or financing support exist to ensure repayment of principal and interest, as well as long term viability. Also, the projects could be already existing and in operations, in design and development, under construction, or existing but operationally inactive.
Facilities that could be taken under the power fund provided for the whole gamut of needs of operators and include long term loans for new power projects, refinancing loans for restructuring of existing loans and leases and working capital loans.
The power fund could provide as much as 70 per cent of the total cost of the project while the loans shall have a maximum tenor of 15 years as determined by the project’s cash flow profile not exceeding July 31, 2025.
The fund provides for moratorium of up to six and a half years on the amortised repayment schedule of the loans. No upfront fee or charge is deductible on any facility under the fund.
In recognition of the importance of the financial system as a catalyst for national economic development; the CBN had in 2009 started a regulator-led collaborative process to enable the financial system participate more effectively in the Nigerian real sector.
The apex bank uses the auspices of the Bankers’ Committee to enable banks articulate and strategize on ways to boost lending to the most critical sectors of the economy for sustainable growth.
The Banker’s Committee had during its 4th Annual Retreat held in Calabar in December, 2012 reaffirmed its commitment to providing finances to the three key sectors of power, agriculture and transportation.
The Committee noted that it decided to focus on the three key sectors because of the foundational importance of the sectors for driving growth and development of the Nigerian economy