Lack of sovereign guarantees threaten longer term investments in Nigeria’s oil/gas sector

Absence of Sovereign guarantees by the Federal Government has been identified as the major reason investors shy away from investing longer term in Nigeria’s oil and gas industry.

Industry stakeholders in the oil and gas sector observe that most successful financing of critical infrastructure especially in the oil and gas sector must be backed up by full government guarantee for it to be sustaining.

Tariye Gbadegesin, Head Heavy Ind. & Telcoms, African Finance Corporation said duration of licensing is one of the challenges investors have in Nigeria in financing long term projects.

Gbadegesin in her presentation at the centre for petroleum information Energy Finance Group programme in Lagos observes that it is practically impossible to finance an Independent Power Project in Nigeria for 15 years.

According to her, “The longer the licensing or contracting framework for projects in Nigeria, the more ultimately limiting the finances”.

Presenting a paper titled AFC and long-tenured finance deals: The difference made, Gbadegesin said a lot of AFC investment is actually in oil and gas, power sector.

“We supported several divestment projects, several power privatisation projects, but we major in the oil and gas sector”, she said.

She advocated for key developmental sectors in Nigeria to come together even from a private perspective to argue about the need for a longer licensing regime as being their first step towards attracting long term partners.

To her in treating sole risk owners, it is important to point out that the pricing, financing and management there was actually a lot of value that collaboration along the way to execution of the projects.

Afolabi Oladele, Director, African Capital Alliance opines that despite the challenges in the Nigerian oil and gas industry, opportunities exist to back indigenous players focused on a rich set of upstream assets.

In his presentation titled Recovery in oil prices presents positive outlook, Oladele however said Nigeria continues to present a rich set of lower-risk upstream assets each with 20 to 250 million barrels recoverable.

Victor Eromosele, CEO, M E Consulting Limited in his paper on Energy industry changes and financing evolution opines that not only has Nigeria’s external reserves crossed $46bn – highest level in 4.5 years – investors are back, but to a more cost-conscious industry.

Eromosele said the good side of the oil and gas industry downturn, is that creativity is back on the cards with ‘unusual’ parties now sitting round the financing table to map out financing strategies that can work.

Discussing on the approach for Finance solution matrix, he listed credit quality as often a function of the stage of the project.

According to him, “Lower and medium risk tends to be more bankable; Exploration and appraisal attract sponsor loan and equity; Development attracts private placement and convertible bonds and DFIs (like EBRD) have appetite from exploration to production”.

KELECHI EWUZIE