Published: June 22, 2009
On June 16, the board of the World Bank approved a US$1.02bn credit for four major projects in Nigeria.
The gas and power project secured US$200mn in credits, which is a concessional financing and has 0.75% interest rate, with an additional US$400mn in guarantees. The World Bank also provides an HIV/Aids project with US$225mn credits, a malaria project with US$100mn and the Lagos Secondary Education Project with US$95mn.
According to a spokesman from the World Bank, all of the construction on projects like these typically goes to local Nigerian companies. Onne Ruhl, country director for Nigeria at the World Bank, tells emeafinance: “Less than the majority of the credit goes to imports. I can’t give you an overall percentage but it is important to note that under the rules of the World Bank, when we do bidding, the local companies actually get a price advantage to make a bid. Obviously we think it’s better if local Nigerian companies can provide the goods or services.”
Regarding gas supply, however, there has been a very long-standing issue between Nigeria and international oil companies about the rights to gas and the conditions of which oil company should deliver gas to the Nigerian domestic market. This is caused by the fact that MoUs between the oil companies and the Nigerian government are old and actually pre-date the time when gas was seen as a valuable commodity. “There is some lack of clarity as to how this gas should be treated,” says Ruhl. “Essentially, this led to a situation where the government felt that the oil companies should deliver gas at a small price and oil companies didn’t have much interest to deliver the gas because they weren’t getting paid very much and the ownership rights were unclear.”
According to Ruhl, this project tries to set up a commercially enforceable contract structure that obliges companies to provide gas and to make sure that the payment for the gas is secure so that the obligation to supply can be enforced. The gas supply will be more commercially structured and more secure.
Ruhl says: “What we hope is that with the improved reliability of gas supply, a number of power producers who expressed interest in investing in power generation in Nigeria, will take comfort from this structure and invest in new generation capacity.” In the case of Nigeria, this will involve many local banks as the banking sector is very large and has significant liquidity.
In terms of privatisation in Nigeria, the government has withdrawn to a significant extent from the economy and with ample success. But there is still a problem with infrastructure, according to Ruhl: “The Nigerian government has to attract more investment to form public-private partnerships which is an agenda that the government wants to push aggressively. I think that push is credible.”
Ruhl continues: “Obviously market circumstances are difficult, so we would like to help the government build the framework to hopefully see emerging market appetite become greater in one or two years from now. Those infrastructure investments will need significant private capital and of course capital market circumstance will help. I wouldn’t want to say that everything is perfect in Nigeria, but quite clearly, the economic reforms took to moving into the right direction, even in the current crisis situation.”