“I wouldn’t say project financing differs from how it’s done in Nigeria and other parts of the world. I think the fundamental issues are first of all, that lenders are taking a much more increased perspective as far as risks are lending to a project finance deal in Nigeria as opposed to lending to a project finance deal as say in the UK or America,” Patrick Mgbenwelu, Director & Head, Project & structured Finance at FBN Capital told CNBC Africa.
Project and infrastructure financing has played a major role in the actualisation of developments like the recent privatisation of the power sector and continues to be highly important to the growth of the Nigerian economy.
“When lending to a project finance deal in Nigeria, the lenders will want to know first of all, will the power station get gas supplied at the price that’s been agreed? When the gas is being supplied, will the power plant be constructed over the three months that we’ve agreed and once constructed, will the power then be sold to the customers at the price agreed?”
According to Mgbenwelu, in other economies, those buckets of risks are easier to be quantified and there’s more certainty about their actualisation.
“In certain markets, for example Nigeria, there are certain incremental risks which surround each bucket of risk, so the approach is more or less the same but the due diligence is much more thorough so the fundamental differences are in trying to make sure that we can contain and put more certainty on financing projects in the country,” he said.
Mgbenwelu believes that the Nigerian government can give certain assurances to assist project sponsors and accelerate the process towards them being able to achieve project completion.
“Some governments actually step in and say, go ahead with the transaction, I will give you a guarantee and the guarantee might cover either, reduction of gas supply or reduction in the amount of people who decide to buy the power,” he explained.