The Nigerian gas sector currently has approximately $51 billion worth of investments according to a recent report by the Nigerian National Petroleum Corporation (“NNPC”).
However, further review and analysis of historical activities across the gas sector value chain indicates that its potential is yet being sufficiently tapped/utilized, when compared to other sectors of the economy. The relevance of gas infrastructure links to a multitude of other sectors and is constantly identified as a pillar for industrialization, economic growth, and equitable distribution to the commonwealth.
In the last few years, experts have drawn insights to gas infrastructure financing as being capital intensive especially in the upstream and midstream segments. In this spectrum, onshore and offshore investors including lending institutions have highlighted challenges and concerns in the industry that should be addressed to facilitate and accommodate more gas infrastructure funding.
In a recent paper titled “Gas Infrastructure Financing” by Patrick Mgbenwelu, Head- Investment Banking Division, FBNQuest Merchant Bank, he highlighted specific challenges facing the sector and discussed some of the opportunities that can be explored for a more robust gas infrastructure funding landscape in Nigeria.
According to Mr. Mgbenwelu, the absence of single digit and long term Naira funding remains one of the primary challenges in the development of gas infrastructure facilities.
“Projects usually require long utilization periods of debt to fully complete construction activities. The current 5-7 year tenor funding from Nigerian banks at rates of 18%-24% is inadequate for any gas infrastructure financing. This means that the Nigerian financing landscape needs to transition to one where single digit and long-term currency funding with up to 20years tenor period can be accessed”.
On the issue of much needed collaboration, the paper further highlighted the need for partnership models between public and private sector organizations as a key driving force to meet the country’s growing infrastructure demands.
Mr Mgbenwelu noted that the government must do more to identify, develop and market investment ready projects for investors to attract private sector capital. When making references on the absence of hedging products, he stated that efforts should be made for the development of these products which will provide much needed added comfort irrespective of whether Nigerian gas projects are funded in either US Dollars or Naira.
On the issue of approvals and permits for gas financing, he called on the government to simplify the process and introduce one-stop-shops where investors can easily obtain all requisite approvals and paperwork required for these projects. In the area of security, he further added that such solutions must include initiatives that will navigate the terrain for job creation to address likely host community issues in sensitive areas to encourage project acceptance by the local communities and other key stakeholders.
In the midst of the gas infrastructural challenges highlighted, a number of applicable fund raising routes such as syndicated loans, reserve based lending, prepayment financing, and accessing the equity and debt capital markets can be explored.
In terms of sectoral opportunities, improvements in the power sector’s payment chain and liquidity constraints, accelerated reduction in gas flaring and rolling out investor friendly incentives for their participation will enhance development of the sector.
In conclusion, he noted some positive developments in terms of efforts being made in expanding Nigeria’s gas infrastructure such as the advancement of funding arrangements for the Ajaokuta-Kaduna-Kano Gas pipeline project and funding plans for train 7 by NLNG.
To read Mr. Mgbenwelu’s complete presentation paper on Gas Infrastructure Financing-Challenges and Opportunities, please visit FBNQuest Merchant Bank’s insight section on our webpage at www.fbnquest.com
