Nigeria’s central bank’s dollar restrictions endanger Azura Power plant

The Central Bank of Nigeria’s restrictions on access to dollars is hurting businesses and the latest victim of the ruinous policy is the $900m Azura-Edo Independent Power Plant in Edo State, now on the verge of default because of an inability to access the greenback.

The plant, which supplies a tenth of Nigeria’s electricity, is at risk of a default on its loan payments because of a severe dollar shortage, according to a report by the Financial Times.

Poor oil sale due to fallen demand has reduced the dollars in Nigeria’s coffers. Rather than float the currency to let in investors who could bring in their greenbacks and address the shortage, Nigeria’s central bank has launched various eccentric policies to artificially prop up the naira, including barring individuals and corporations from accessing dollars in their own bank accounts.

The central bank also decides which company will access dollars and that is causing severe distress to companies who receive payments in naira and require dollars to settle loan obligations or buy inputs.

“They have the funds [in naira] — they just can’t make the payment because they’re in the queue for dollars at the central bank, and there just aren’t enough,” the financier of the power plant told the Financial Times.

A senior central bank official said its recent efforts to address the shortage would help Azura avoid default. CBN’s recent efforts include an announcement that Bureau de Change (BDC) operators would be allocated dollars on a twice-weekly basis. Over 5,000 BDCs across the country each received a dollar allocation of $10,000 on Monday, but that is yet to have a significant impact as severe dollar shortages starve businesses of raw inputs.

The World Bank and the multilateral lenders that funded Azura have long held it up as a model for major infrastructure project investment in Africa. They are unlikely to aggressively pursue repayment, the financier said.

However, if Azura defaults on its loan obligations, this could have serious implications for Nigeria.

Any default — even if only technical — would at least temporarily “slam the door” on similar large projects in Nigeria, further squeezing foreign investment, analysts say.

The debt financing for the $900m Azura power plant project is provided by a consortium of 15 banks from nine different countries, including most of the European development finance institutions. It is also the first Nigerian power project to benefit from both the World Bank’s “Partial Risk Guarantee” structure and the political risk insurance supplied by the Multilateral Investment Guarantee Agency.

The concern had been whether the Nigerian Bulk Electricity Trading company (NBET) will pay Azura as and when due but it is seems dollar scarcity is emerging the biggest threat.