Minister of Power, Prof Barth Nnaji
The Federal Government Wednesday entered into an agreement with the America government which will allow Nigeria’s Independent Power Plants (IPPs) access to about $1.5 billion concessionary loan for the acquisition of equipment and services from the US.
A Memorandum of Understanding (MoU) for the $1.5 billion long-term single digit interest rate loan was signed between the Minister of Power, Prof. Bart Nnaji, on behalf of the Federal Government and President of US Export Import Bank (Ex-Im Bank), Mr. Fred Hochberg, for the US government in Abuja.
The facility is managed by the US Ex-Im Bank, a government agency that provides export-credit insurance and financing, among other services, to help foreign buyers purchase US goods and services.
Prospective investors in Nigeria’s emerging power sector will be expected to plug into the loan aimed at securing financial backup for the purchase of power equipment and services from renowned US manufacturers of power equipment.
Nigeria intends to increase its power production from the current level of 4000mw to about 15,000-20,000mw by 2015, and 40,000mw by 2020.
This agreement, when fully operational, will provide bankable funds for the purchase of goods and services from indigenised US firms for expansion of Nigeria’s electricity infrastructure.
It is equally expected to swiftly increase Nigeria’s power output in 2020 by ten-fold, when investors in the generation and distribution aspects of the country’s power sector, especially the IPPs would have accessed and utilised the loan.
Similarly, it is understood that Ex-Im Bank and the ministry of power are favourably disposed to establishing the funding framework to support exports of power equipment from the US to power projects that are structured on an IPP basis, considering that the sale of power from IPPs is supported by an adequate level of strong credit support like the World Bank Partial Risk Guarantee (PRG).
Also, transactions under the framework would be approved by Ex-Im Bank on a case-by-case basis, in compliance with the bank’s credit, environmental and other policies and procedures.
Nnaji, in his remarks at the MoU signing ceremony, said the latest move was a step towards a positive direction in closing the funding gap experienced in Nigeria’s power sector.
He spoke on government’s initiatives to expand investments that would increase the quantum of power available to Nigerians within three years, as well as the incentives to encourage private, foreign and local investors to achieve the target.
Among these are government policies and programmes to assure a cost-reflective tariff, a bulk power trading company that manages a government guarantee of payment for power producers who supply to distribution companies, and the on-going privatisation of public power generation and distribution companies.
He explained that the US had previously felt reluctant to commit funds into Nigeria’s power sector owing to obvious irregularities that had been part of the sector but that the country’s significant steps towards sorting out these challenging issues had led to the $1.5 billion investment facility from US Ex-Im Bank.
“Prior to our visit two weeks ago, which was quite different because we were able to present to you what we have done in the last couple of months to move the sector forward, we discovered that the US were not so much interested in investing in our power sector due to irregularities in the sector.
“But we have been able to do what is essentially needed in government to move the sector forward. We have set up a bulk trader, initiated a cost-reflective tariff in the sector and the process of privatisation of power utilities is on-going, and as recently reported, you have been able to close the competitive gap in export financing. We are looking forward to you closing the funding gap in our power sector as well,” Nnaji said.
Hochberg stated that Nigeria is one of nine countries that Ex-Im Bank had identified as offering US companies good opportunities for sales, adding that the country has a growing economy and significant infrastructure need to be met.
According to him, “$1.5 billion is just a start. We want to deploy this financing as quickly as possible to help meet President Goodluck Jonathan’s goals for growing the Nigerian economy by greatly expanding the availability of power in the country.
“The bank’s board of directors will certainly consider additional financing if needed and we are also interested in financing US exports in support of Nigeria’s other infrastructural needs, which we understand may total over $220 billion between 2012 and 2016.”
He noted that the sale of US goods and services for expansion of Nigeria’s electricity infrastructure would create and maintain jobs in both countries, adding that increased reliable power in Nigeria is widely accepted as central to the growth of the Nigerian economy.
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