With loans to the energy sector constituting over 20 percent of non-performing loans in the banking sector, analysts say the pension fund and bond market are attractive options to finance sorely-needed gas projects in an era where oil is reeling.
Nigerian commercial banks are fatigued from lending to the energy sector after refinancing have done little to assuage default. With the price of crude oil hovering just above floor prices, it is easy to reject the suggestion of lending to the energy sector.
Nigeria’s pension fund is worth over N10trillion and a population where the median age is less than 20, the pot may not dry anytime soon. It would not also be needed as fast as in Europe or America where median ages are above 40.
The Federal Government is accessing the pension fund to finance infrastructure projects, analysts say it needs to broaden the fund’s investment options.
“We need to revise the policy framework for institutional investment locally. Nigeria has more than N10trillion in pension fund assets, it is a huge pot.
“If the government is saying we will borrow from it to finance infrastructure development, part of these infrastructure is gas,
” said Rolake Akinkugbe-Filani, managing director, EnergyInc Advisors, at the Nigerian Gas Association (2020) Virtual Business Forum, held on May 8.
Akinkugbe-Filani argued that it is even better to create structures for investments funds to access the pension fund and put them in private equities rather than having government use the pension fund to finance infrastructural projects.
The bond market also provides an opportunity to fund gas projects though it must be short-term and could be limited by low returns currently seen in the market, says Ayodele Oni, energy lawyer and partner at Lagos-based Bloomfield lawfirm on a phone call.
Infracredit capitalised by the Nigerian Sovereign Investment Authority (NSIA) and other local institutions including local banks provide underwriting capabilities and these need to be explored said Akinkugbe-Filani.
Dolapo Oni, associate at Canad-based wealth management firm, Richardson GMP, said that banks are stretched out lending to power sector so other funding sources including pension funds, bond market should be backed by some sort of sovereign guarantee or protection similar to what Infra credit is giving in the form of partial risk guarantee to ensure funding for other sectors that will generate energy demand and will support gas infrastructure as long as there is a credible off-taker in those sectors.
Discussions about alternative financing structures for gas stems from the fact that traditional institutions are tired of lending the sector but gas holds opportunities to unlock development in Nigeria.
Nigeria’s flagship oil grade Bonny-light is selling below benchmark Brent crude of $30 indicating that Africa’s biggest oil producer is staring down at a fiscal crisis.
After securing a $3.4billion loan from the International Monetary Fund (IMF) to plug holes in its 2020 budget, Nigeria is shopping for another $3.5billion from other development institutions, including the World Bank.
This situation makes a case for greater attention to gas, which Nigeria has often treated as a nuisance to get past while foraging for oil.
Nigeria has gas reserve of 201Trillion Cubic Feet (TCF) of gas but produced on 8.06 Billion Standard Cubic Feet per Day (BSCFD) of gas last year. 41 percent of it was exported, 17 percent was used domestically, 33 percent served as re-injection fuel and 9 percent was flared according to the Department of Petroleum Resources, the upstream petroleum sector regulator.
Currently, Nigeria is under using her vast gas resources. For example, Australia has a proven gas reserve of 128 TCf but produces 88mpta of LNG, Malaysia has 97 TCF of proven gas reserves and produces 29mtpa of LNG while Nigeria with 201TCF of proven gas reserves has an LNG output of 22mtpa.
Nigeria has played itself short when it comes to gas because of weak fiscal terms and poor regulation analysts say.
“Tying gas infrastructure development to the power sector has slowed down the development of gas infrastructure,” said Oni who was on a panel at the NGA virtual seminar.
Linking gas infrastructure development to the power sector has led to noncompetitive gas pricing framework. The Federal Government says the objective of fixing gas prices is to stimulate growth in other sectors for example the textile industries but it has kept away private capital.
Oni also said that outside of an export dominated strategy, Nigeria has to begin to look critically at other sectors like transportation which could be transformative with the use of CNG cars.
