Nigerian banks would need the support of institutional and foreign investors to fund the huge resources needed to drive various ongoing infrastructure projects, especially the over $8bn required to meet the deficit in the power sector for the next 10 years.
The Director and Head, Project and Structured Finance, FBN Capital Limited, Mr. Patrick Mgbenwelu, has said.
He spoke at the first FBN Capital Project and Infrastructure Finance Conference in Lagos, noting that between $8bn and$12bn would be needed yearly for the next 10 years to finance the nation’s power projects.
The amount, he said, was needed to bridge the large deficit in the power demand and supply of the nation, which the banks alone would not be able to fund.
“This funding cannot come from the banks alone; there is the need for institutional investors and foreign investment to bridge the funding gap,” he noted.
Mgbenwelu said the Greenfield Independent Power Projects would emerge to bridge the energy gap, while government’s Public Private Partnership commitment would take care of various infrastructure projects such as rail lines, roads, bridges and airports.
Participants at the event were unanimous in their position that although Nigeria’s vast natural resources and growing power and infrastructure demands had garnered substantial interest from lenders and developers from across the globe, there were challenges in ensuring the country’s huge potential was realised.
The FBN boss said the multi-billion dollar government projects would require private sector involvement, hence the need for creating Special Purpose Vehicles as obligator financial vehicles.
Highlighting the importance of infrastructure finance, he said investors could choose to approach finance institutions and seek funds either as a corporate entity or directly through the projects.
According to him, project finance as an option for accessing funds is an avenue for managing risks, instead of bearing them directly as a corporate organisation.
He said, “Additional expansion funding can be raised with ease, subject to the project achieving steady state post completion. Project financing vehicles can be credit enhanced via a rating which can exceed that of the actual sponsors.”
He added it also ensured and forced 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 him.
Mgbenwelu explained that funding under such an option was primarily based on future cash-flow generating capacity of the project.
Hence, in the absence of tangible assets, projects could still get funding, as opposed to corporate finance funding whose funding was generally asset-backed, he added.