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Seeking effective framework for energy infrastructure financing

DG Nigeria Electric Regulatory Commission, Dr Sam Amadi

Stakeholders in the country’s energy cum financial sectors have called for a more effective and articulate framework for the financing of energy infrastructure. They, therefore, stressed the need for an effective regulatory environment, good economics, appropriate financing, appropriate risk allocation and project development in the energy sector.

In a presentation at the 2012 Lagos Bankers’ Night, titled, “Developing an Appropriate Framework for Energy Infrastructure Financing in Nigeria,” the Director, Financial Institutions and Advisory Services, Africa Finance Corporation, Mr. Taiwo Adeniji, said issues bearing on policies, laws, institutions, planning, pricing, fiscal regimes (incentives), long-term finance, mature capital markets, skills (expertise), early stage risk capital, and public (private risk share) should be well spelt out.

He said, “The above four elements of the framework are by no means independent of one another. They rather have ‘cause and effect’ relationships between them. For example, good regulatory environment leads to good economics, which often leads to good finance, which leads to growth in bankable projects, among others. “Appropriate finance is typically considered to be the critical limiting factor to energy infrastructure development in Nigeria, but this is not the case”

Huge amounts, he noted, had been expended so far, with little or no results, citing the amounts between $10bn and $15bn expended on power infrastructure between 2005 and 2007, and billions of dollars on Turnaround Maintenance of refineries, among others. Describing energy as the lifeblood of any nation, Adeniji said without adequate energy, a nation can never live up to its potential, and would lapse into economic decline and decay.

He said, “International Energy Agency data puts Nigeria’s total energy consumption at 111,000 kilotonnes of oil equivalent. 81.3 per cent of the total was combustible renewables and waste, that is mostly biomass to meet off-grid heating and cooking needs, mainly in rural areas. “IEA data showed the electrification rate for Nigeria was 50 per cent. Total world consumption in 2011 was 12275 million tonnes of oil equivalent. Oil remained the leading fuel accounting for 33.1 per cent of global energy consumption, while coal accounted for 30.3 per cent.

The Asia Pacific region is the world’s largest energy consumer with 39.1 per cent of global energy, and 68.6 per cent of global coal consumption. Renewables, natural gas and nuclear power are dominant in Europe and Eurasia.” According to the IFC expert, the provision of core economic infrastructure remained the primary responsibility of government, “and this responsibility cannot, and should not, be outsourced to the private sector.”

He said the government should, however, create a conducive environment for significant private sector participation in the provision of economic (and even social) infrastructure, and related services, by ensuring that the requisite legal, regulatory, economic, financing and other conditions were in place. “The private sector looks to make profits, and will invest where there is reasonable certainty that it can invest profitably. It should indeed be a symbiotic and mutually beneficial relationship, with each party doing what it can do best to build infrastructure and create wealth,” he added.

He said a good regulatory framework for the energy sector should show independence; clarity of roles, objectives and responsibilities; completeness in rules and targeting; stakeholder participation; transparency; predictability and consistency; proportionality; accountability; and appeals. In his address, the Chairman, the Chartered Institute of Bankers of Nigeria, Lagos Branch, Mr. Bayo Olugbemi, said over the next decade, largely as a result of economic growth and population explosion, Nigeria would witness a surge in the demand for energy.

This, he noted, was already happening especially in urban centres like Lagos, Abuja, Kaduna, Enugu, Kano, Port-Harcourt, Ibadan, among others, with the number of housing estates, new towns and new industrial sites springing up on daily basis.

Olugbemi said, “It has been said that world energy demand will increase by about 47 per cent to 17.7 billion toe between now and 2030. Nigeria will definitely have its own share of this volume. Whether we meet the demand from fossil fuels, or nuclear energy, or from hydro-power, gas turbine plants, or from renewable resources, the need to upgrade and expand our energy infrastructure from generation to transmission and distribution cannot be over emphasized

“The unbundling of PHCN and the invitation for private participation in the energy sector of the nation’s economy is indeed heart-warming and a welcome development.” However, he said financing the unfolding numerous energy projects was a major challenge and concern to all and sundry.

From: The Punch