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FBN Capital confab proffers ways to unlock Nigeria's growth potential

By The Citizen

Nigeria's potential can be unlocked through sustained infrastructure growth and development, even as the nation continues to seek the transformation of the power sector through public private partnership initiatives, Mr. Kayode Akinkugbe, Managing Director, FBN Capital has said.

Speaking at the 1st FBN Capital Project and Infrastructure Finance Conference in Lagos yesterday, Akinkugbe said the current power sector privatization initiatives will go a long way towards closing 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,” he added.

Akinkugbe said FBN Capital was delighted to host the inaugural conference in keeping with its commitment to provide a platform for fostering conversations that would drive development in Nigeria, particularly infrastructure growth.

The event which was attended by local and foreign high level executives across key industries, regional financiers, consultants and advisors, as well as government agencies explored the role of project and credit risk assessment in unravelling the nation's growth potential by highlighting considerations integral to project finance through a series of panel discussions.

Participants at the event noted that while Nigeria's vast natural resources and growing power and infrastructure demands has garnered substantial interest from lenders and developers from across the globe, there is need for more funding avenues to address the challenges to realizing the country's huge potential.

Presenting a paper on “The Rationale for Project Finance in Nigeria”, Mr. Patrick Mgbenwelu, Director and Head, Project and Structured Finance, FBN Capital Limited, said the role of the banks is to make investors comfortable as they proceed on various projects and privatisation deals in the country.

Mgbenwelu said Greenfield IPPs will emerge to bridge the energy funding gap while Government's PPP commitment will fuel various infrastructure projects such as rails, roads, bridges, and airports among others.

He also stated that multi-billion government projects will require private sector involvement, therefore creating need for Special Purpose Vehicles (SPVs) as obligator financial vehicles. According to him, investors can choose to approach finance institutions and seek funds either as a corporate entity or directly through the projects, (Corporate Finance route or Project Finance).

'Project finance is an avenue for transferring risk. Additional expansion funding can be raised with ease, subject to the project achieving steady state post completion' he said, highlighting the benefits and challenges of the two fund-seeking options investors are faced with.

'Project financing vehicles can be credit enhanced via a rating which can exceed that of the actual sponsors' he said, adding that it also ensures and forces extreme financial and project management discipline. Another edge this option has over corporate financing is that once the project completion is achieved, it can be used as a template for rolling out other projects.

According to Mgbenwelu, funding under such an option is primarily based on the future cash flow generating capacity of the project, hence, in the absence of tangible assets, projects can still get funding as opposed to corporate finance funding whose funding is generally asset backed. Another challenge of corporate finance is that there is a tendency for lenders to delve unnecessarily into corporate entity's information sensitive affairs. Over the past few years, a large number of natural resources and infrastructure projects have been financed and developed to meet the demands for Nigeria's large infrastructural needs. Presently, the nation has just concluded the first phase of its power sector privatisation programme and has now commenced the process for launching the second phase which is being driven by the Niger Delta Power Holding Company (NDPHC). Other significant deals include the $1.5 billion financing for Tolaram's Lekki container port and the Lagos State Blue Line project estimated to cost approximately USD1.8 billion.