Project cost and funding mix
The World Bank Group (2018) asserts that Azura’s $876 million financing involves $190 million of equity and $686 million of debt from a consortium of local and international financiers. According to the World Bank Group (2017):
- The tranche of commercial banks, including Standard Chartered Bank, Siemens Bank, Rand Merchant Bank, Standard Bank, and KfW IPEX Bank, amounted to $ 234 million.
- Such financial institutions as IFC, DEG, Proparco, FMO, Swedfund International, Emerging Africa Infrastructure Fund, OPIC, the UK government’s development finance institution (CDC Group), and the ICF Debt Pool provided $ 267 million.
- $120 million was provided by Nigeria’s Bank of Industry.
- The OPIC, Emerging Africa Infrastructure Fund, IFC, and Proparco provided $65m in subordinated debt.
- The World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) provided $492 million in guarantees.
- The World Bank Group’s International Bank for Reconstruction and Development (IBRD) provided guarantee coverage of $325 million.
Demand, supply, and risks
Although Nigeria has the most significant population and economy in Africa, it suffers from an acute lack of electricity. The World Bank Group (2017) notes that energy demand is estimated to be in the order of 6 thousand megawatts (MW), while dependable available capacity is around 3.5 thousand MW. Moreover, according to Siemens AG (2018), Nigeria has one of the lowest per-capita electricity consumption figures globally.
According to the World Bank (2014), given the overall scale of the reform program and the significant volumes of operations being supported under the PRG Series, the overall risk rating is considered as high. Key project risks are related to the sector’s financial viability issues, the inability of sponsors and other bidders to mobilize funding, construction delays and cost overruns, possible changes in government support, macroeconomic instability, and slower-than-expected demand growth. Aside from crucial risks, other challenges to the success of the PRG Series remain, such as the overall governance risk in Nigeria, the newly formed NBET’s ability to manage transactions, and technical risks such as transmission system capacity bottlenecks.
Initial problems with the project and final restructuring
Clifford Chance (2016) affirms that several aspects of the current Nigerian foreign exchange regulations posed challenges that directly impacted the proposed financing structure and, therefore, the feasibility of the project. To address these challenges, the lenders engaged with the Central Bank of Nigeria (CBN), which has oversight of foreign exchange regulations, to seek special regulatory dispensations. Another challenge facing the project was the overall gas supply and transportation.
According to the World Bank Group (2018), the Azura-Edo IPP reached a financial close in December 2015 and began generating electricity in December 2017, seven months ahead of schedule. Akpan (2020) asserts that the plant’s production figures have been among the highest of any new plant in the world. Its availability is more than 96 percent, and the equivalent forced outage rate is less than two percent. Consequently, since the beginning of the commercial operation, the Azura-Edo Electric Power Plant has provided more than eight percent of all electricity supplied to the national grid.
Azura-Edo is the first wholly project-financed IPP in Nigeria. It is regarded as a ground-breaking project that paved the way and set essential benchmarks for a future private sector-driven project financed IPPs in Nigeria. According to the African Infrastructure Investment Managers (2020), the Nigerian government expects to use the same financing arrangements it developed for Azura as a funding model for future independent energy projects.
References
Akpan, U. (2020). How $900m loan for Azura Power Plant was raised ― Mgt. Vanguard.
African Infrastructure Investment Managers. (2020). Case study: Azura [PDF document].
Clifford Chance. (2016). Boosting power generation in Nigeria – the Azura-Edo independent power project [PDF document].
The World Bank Group. (2017). Multilateral development banks’ collaboration: Infrastructure investment project briefs: Nigeria: The Azura-Edo Independent Power Plant [PDF document]. Web.
The World Bank Group. (2018). Financial solutions brief. Nigeria: Azura-Edo IPP [PDF document].