Early this year, the Minister of State for Petroleum Resources, Chief Timipre Sylva, boldly declared 2020 as the year of gas for Nigeria and subsequently inaugurated the National Gas Expansion Programme (“NGEP”) Committee to drive the expansion of the gas sector. Although the outbreak of the global pandemic coupled with the attendant disruptions created challenges for the Nigerian oil and gas industry, the Ministry of Petroleum Resources (the “Ministry”) has consistently pushed the Nigerian gas agenda.

The current push to develop Nigeria’s gas reserves is consistent with the objective of the 2017 National Gas Policy, which is to develop Nigeria as an attractive gas-based industrial nation, giving primary attention to meeting local gas demand requirements and developing a significant presence in international markets. Without doubt, Nigeria has the reserves to achieve this vision as the Department of Petroleum Resources recently noted that Nigeria’s proven gas reserve is now 203.16tcf¹ ; however, the key issue is the need for government to create the enabling business, financial and regulatory environment to attract investments and for such investments to thrive. To do this, there must be synergy between the relevant government actors and a focused approach in the implementation of the gas policy.

NGEP Intervention Facility

To complement the efforts of the Ministry to improve the viability of the Nigerian gas sector and encourage private investments in the sector, the Central Bank of Nigeria (“CBN”) recently issued a  Framework for the Implementation of Intervention Facility for the National Gas Expansion Programme (the “Framework”).

The Framework provides for a N250 billion intervention facility (the “Facility”) to help stimulate investment in the gas value chain as one of the critical sectors of the Nigerian economy. The objectives of the Facility include the need to improve access to finance, stimulate investments in gas infrastructure development and ultimately boost employment.

In this newsletter, we highlight some key points arising from the Framework.

Eligible Activities

Only activities that qualify as eligible activities can benefit from the Facility. While the Framework allows the Ministry to recommend other mid to downstream gas value chain activity for funding, the Framework delineated the following as eligible activities:

• Establishment of gas processing plants and small-scale petrochemical plants;
• Establishment of gas cylinder manufacturing plants;
• Establishment of L-CNG regasification modular systems;
• Establishment of auto gas conversion kits or components manufacturing plants;
• Establishment of CNG primary and secondary compression stations;
• Establishment and manufacturing of LPG retail skid tanks and refilling equipment;
• Development/enhancement of auto gas transportation systems, conversion and distribution infrastructure;
• Enhancement of domestic cylinder production and distribution by cylinder manufacturing plants and LPG wholesale outlets; and
• Establishment/expansion of micro distribution outlets and service centres for LPG sales, domestic cylinder injection and exchange.

Funding

Funding under the Facility is based on the nature of proposed beneficiaries – that is: (i) aggregators, manufacturers, processors, wholesale distributors and related activities; and (ii) small and medium-scale enterprises (SMEs) and retail distributors. For the former, the Facility will be funded through the Power and Airline Intervention Fund (“PAIF”) while the NIRSAL² Microfinance Bank (“NMFB”) under the Agri-Business/Small and Medium Enterprise Investment Scheme (AgSMEIS)³ will fund SMEs and retail distributors.

Loan Features

The Framework provides the features of the loans to be disbursed from the Facility based on the category of the beneficiaries as follows:

Manufacturers, Processors, Wholesale Distributors, etc

1. Loan Amount: For term loan, the loan amount shall not exceed N10 billion per obligor and shall be determined based on the relevant activity involved. For working capital facility, the maximum amount is N500 million per obligor.
2. Interest Rate: For both term loan and working capital, the all-inclusive interest rate shall not be more than 5% per annum up to 28th February 2021, and thereafter 9% per annum effective from 1st March 2021.
3. Tenor: The tenor for term loan is maximum of 10 years with 2 years maximum moratorium on principal repayment only. The working capital facility is for 1 year with a maximum roll over of not more than twice, subject to prior approval.
4. Collateral: The collateral for the loan shall be those acceptable to the participating banks⁴ under the PAIF.

SMEs and retail distributors

1. Loan Amount: For term loan, the loan amount shall not exceed N50 million per obligor and shall be determined based on the relevant activity involved. For working capital facility, the maximum amount is N5 million per obligor.
2. Interest Rate: For both term loan and working capital, the all-inclusive interest rate shall not be more than 5% per annum up to 28th February 2021, and thereafter 9% per annum effective from 1st March 2021.
3. Tenor: The tenor for term loan is maximum of 5 years with 2 years maximum moratorium on principal repayment only. The working capital facility is for 1 year with a maximum roll over of not more than twice, subject to prior approval.
4. Collateral: The collateral for the loan shall be those acceptable for SMEs as determined by NMFB.

Modalities for Accessing the Facility

• To access the Facility, eligible applicants or sponsors under the manufacturers, processors, wholesale distributors category are required to submit their applications with accompanied documents through any participating banks to the CBN, while eligible SMEs and retail distributors are to approach NMFB with bankable proposals.
• Due diligence exercise will be conducted on the submitted applications by the participating banks or NFMB depending on the category of the applicant. The due diligence conducted will be based on business and credit considerations.
• Following other administrative steps (including internal review of submitted applications by the CBN) and where satisfied, the CBN will release the approved sum to the participating bank or NMFB (as the case may be) for disbursement to the obligor according to agreed disbursement schedule.
• The approved sum must be disbursed to the obligor within 5 working days of CBN’s release.

Responsibilities of the Beneficiaries

For the effective implementation of the Facility, beneficiaries are mandated to:

• Adhere strictly to the terms and conditions of the Facility;
• Ensure prudent utilisation of facility for the purpose for which it was granted;
• Keep up-to-date records and allow access to the project and records by the CBN and participating banks; and
• Repay the facility in accordance with the approved repayment schedule.

Conclusion

The CBN and the Ministry must be commended for their collaborative efforts towards ensuring access to finance for the development of eligible gas projects in Nigeria, particularly considering the economic situation foisted by the pandemic. The introduction of the Facility is also timely given the ongoing Nigerian Gas Flare Commercialization Programme as it provides an opportunity for participants to access finance for their proposed projects.

It is also worth noting that the mandated due diligence exercise required under the Framework is a key aspect of the intervention. To ensure that the Facility achieves the desired objectives, the participating banks and NFMB must ensure that thorough due diligence exercises are conducted on proposed projects presented for funding. Finally, the CBN, the Ministry and the participating banks must jointly ensure that the utilization of the loans by beneficiaries is closely monitored for effective implementation of the Facility.

1. https://www.dpr.gov.ng/nigerias-proven-gas-reserve-now-203-16tcf-says-dpr/
2. Nigeria Incentive-Based Risk Sharing System for Agricultural Lending.
3. Please read here our blog post in this regard.
4. That is, all deposit Money Banks and the NMFB.