CBN'S FUNDING FOR POWER SECTOR, OTHERS
The Nigerian economy has in the past decade faced trying times as most sectors are still striving to recover from the global crisis that hit the nation’s financial system. The crisis, as well as restructuring in the financial system, had seen banks become more cautious in their lending. However, critical sectors in the economy still require funding and this had prompted the Central Bank of Nigeria (CBN) to introduce intervention funds that are expected to serve as alternatives to long and short tenured facilities for critical sectors at affordable rates.
While the CBN has been criticised in recent times for its several interventions in most sectors of the economy, there is no doubt that its interventions in the critical sectors have been a major factor for the recovery and growth of the nation’s economy. According to the CBN Governor, Mr Godwin Emefiele, the apex bank’s determination to improve lending to the real sector of the economy is targeted at stimulating employment generation and boost foreign reserves through non-oil exports. Over the years, power has been at the top of the list of complaints by local businesses both big and small as a major challenge to growth.
According to the World Bank, increases in energy consumption in Nigeria have been found to spur economic expansion. In 2009, the Central Bank of Nigeria (CBN) came up with the N300 billion Power and Aviation Intervention Fund (PAIF) to facilitate investments in the two sectors which are among those that have the potential to drive sustained economic growth. The setting up of the fund was heralded by the CBN’s realisation that without adequate infrastructure, the Nigerian economy cannot overcome its structural challenges and achieve sustainable growth and development. The fund, therefore, is seen by experts as the much-needed catalyst to bridge the country’s infrastructural gap through lending at concessionary rates to the private sector.
The PAIF was set up through the CBN’s approval for the investment of the sum of N500 billion Debenture Stock to be issued by the Bank of Industry (BoI). Of the total sum, N200 billion was set aside for the refinancing/restructuring of SME/ Manufacturing portfolios, while the sum of N300 billion was earmarked for power and airline projects. The goals of the fund, according to the CBN, include fast-tracking the development of electric power projects, especially in the identified industrial clusters in the country and serve as a credit enhancement instrument to improve the financial position of the Deposit Money Banks (DMBs).
Particularly the Power and Airline Intervention Fund (PAIF) was introduced to fast-track the development of electric power projects and the aviation sector of the Nigerian economy with the objective of improving power supply, generating employment, and enhancing the standard of living of Nigerians. Managed by the Bank of Industry (BoI) with the African Finance Corporation (AFC) serving as technical adviser, the fund is accessible through all the Deposit Money Banks (DMBs) and Development Finance Institutions. Companies eligible to access facilities under the fund are those involved in electricity power supply value chain, which include power generation, transmission, distribution and associated services. The fund’s objective is to fast-track the development of electric power projects, especially in the identified industrial clusters in the country as well as the development of the aviation sector of the Nigerian economy by improving the terms of credit to Airlines.
It is also designed to improve power supply, generate employment, and enhance the living standard of the citizens through consistent power supply as well as provide leverage for additional private sector investments in the power and aviation sectors. To be eligible for the fund, the CBN said power firms must be a corporate entity, duly registered in Nigeria, involved in electricity power supply value chain that includes power generation, transmission, distribution, gas-to-power projects and associated services. It also stated that the eligible projects can be promoted by private or public sector sponsors, or a combination of both, but must be structured either as profit-oriented business or public service, provided that contracted cash-flows or financing support exist to ensure repayment of principal and interest, as well as long term viability.
It added that the project company may also offer appropriate credit enhancement options to support its financial obligations, while the project could be already existing and in operation, in design/development, under construction, or existing but operationally inactive. Specifically, the fund with a baseline of N300 billion disbursed at nine per cent per annum is meant for refinancing existing loans, refinancing existing leases and working capital for both power and aviation sectors, while the long term segment of the fund is exclusively applicable to new power projects only. In the first six months of last year, N18.74 billion was disbursed under the PAIF to four power projects compared with N4.76 billion that was disbursed to one power project in the first half of 2017.
The sum of N12.35 billion was repaid in the first half of 2018, compared with N13.01 billion in the same period in 2017. As at June 2018, the cumulative disbursement since inception of the Fund was N298.12 billion for 69 projects, comprising 45 power projects, valued at N177.36 billion and 24 airline projects, valued at N120.76 billion.Total repayment received under PAIF since inception as at June 30, 2018 stood at N132.18 billion with N66.58 billion repaid by power projects while N65.6 billion had been repaid by airlines which accessed the facility. Compared to a cumulative disbursement of N277.4 billion recorded as at June 2017 and a cumulative repayment of N106.13 billion, the 2018 figures showed as 24.5 per cent improvement in repayments although the amount disbursed under the fund had increased by 7.5 per cent in the one year period.
As at June 2017, 16 Airline projects and 43 Power projects were funded through the PAIF which is aimed at keeping them afloat amid harsh economic situation and threats to jobs and N55.8 billion had been repaid on the 16 projects supported under aviation sector which stands at N120.76 billion, representing 43.5 per cent of the total interventions in both sectors, while the 43 Power projects worth N156.64 billion had repaid N50.3 billion as at June 2017.