Experts: Nigeria’s Energy Projects Need Bankability, Not Just Capital

Peter Uzoho Nigeria’s next wave of energy investments will depend less on the availability of capital than on the ability to make projects bankable, energy experts have said, citing the financing of the Dangote Refinery as a major lesson for the sector. The experts, who spoke on the funding of large-scale energy infrastructure, said Nigeria’s persistent energy challenges had created no shortage of potentially viable projects, but weak project structures, execution risks and uncertainty over returns continued to discourage investors and lenders. The Chief Executive Officer of Petrovision, Dr Lekan Aluko, said the Dangote Refinery provided evidence that large energy infrastructure could be privately financed in Nigeria without sovereign guarantees when the underlying project was sufficiently robust. The 650,000 barrels per day refinery, he noted, was developed alongside critical infrastructure, including a port, power plant and roads, allowing the promoter to address some of the constraints that could otherwise have undermined the project. Aluko said the experience was particularly relevant to Nigeria’s effort to revive its existing refineries, where the challenge was fundamentally different because the facilities were brownfield assets with uncertain technical and commercial liabilities. He said investors would want to know the actual condition of the facilities, the cost of rehabilitation, the technology required, the implementation period and whether the plants could compete economically after rehabilitation. According to him, those questions must be answered before determining whether rehabilitation or new construction represents the more viable investment option. “Investors need robust projects, strong governance, sufficient sponsor commitment, credible execution track record and transparent risk management,” he said. Aluko said the Dangote project had provided lenders with comfort because of its technical and commercial proposition, its identification of project risks and the promoter’s substantial financial commitment. He, however, warned against applying the same financing model mechanically to the state-owned refineries in Port Harcourt, Warri and Kaduna, whose combined nameplate capacity stands at 445,000 barrels per day. The refineries have undergone years of rehabilitation efforts, with the Nigerian National Petroleum Company Limited (NNPC) now seeking technical and financial partners as part of efforts to restore their operations. Aluko said the emergence of proposals such as the African Refinery Port Harcourt Limited (ARPHL), which plans to develop a new refinery within the Port Harcourt complex, underscored the need for a commercial assessment of the alternatives. “The question should be whether to rehabilitate or build new,” he said, stressing that the decision should be based on technical and economic merit rather than sentiment. The bankability challenge, the experts said, also extends beyond refining to electricity, where inadequate grid reliability has pushed industrial operators towards captive power generation. On his part, the Chief Executive Officer of Mudozangi, Mr Chidi Amudo, said the scale of the Dangote project demonstrated the level of commitment required from investors willing to take on major infrastructure projects. He said, however, that prospective investors in the power sector continued to worry about the ability of the market to guarantee payment for electricity delivered to the grid. Also, the Chairman of Platform Capital, Dr Akindele Akintoye, said the Nigerian business environment often required entrepreneurs to provide infrastructure and systems beyond their immediate projects. He said the experience of the Dangote Refinery illustrated how investors sometimes had to effectively create the ecosystem required to make a major project work.