Nigeria’s Central Bank Governor has said that the dollar denominated loan obtained to construct the Azura Independent Power Plant (IPP), is not considered an authentic sovereign dollar debt by the Federal Government.
“When you talk about Azura, it is not in our view an authentic sovereign foreign dollar denominated (FX) debt,” Emefiele said at a media briefing on the sidelines of the International Monetary Fund (IMF) World Bank annual meetings in Washington DC, this week.
“We have ensured that any of our debts due is given utmost priority, particularly foreign debts. It’s like a first line charge and the Minister of Finance talks to me about it and we ensure that we find the dollars to pay any of our debts. That is the rule if it is Nigeria’s authentic sovereign debt.”
On FX swap agreements Emefiele said the outstanding maximum number is about 15 percent of its reserves.
The Azura-Edo Independent Power Project (IPP) is a functional 461MW power plant, owned by a group of investors led by an international private equity (PE) firm – Actis and includes the Edo State government as part of the investment consortium.
The debt financing for the $900m Azura power plant project was provided by a consortium of 15 banks from 9 different countries, including most of the European development finance institutions.
It is also the first Nigerian power project to benefit from both the World Bank’s “Partial Risk Guarantee” structure and the political risk insurance supplied by the Multilateral Investment Guarantee Agency.
Fears about a default by Azura have been growing since January following the Central Bank of Nigeria’s (CBN) moves to conserve its foreign currency holdings following the oil price slump that occurred last year due to the coronavirus pandemic lockdowns.
As a result of the Central Bank rationing of dollars companies who receive payments in naira and require dollars to settle loan obligations or buy inputs are facing severe distress.
“They have the funds [in naira]— they just can’t make the payment because they’re in the queue for dollars at the central bank, and there just aren’t enough,” the financier of the power plant told the Financial Times last year.
The binding agreements which brought about the plant were signed in 2013 and 2014, and on April 22, 2013, the Power Purchase Agreement (PPA) was signed.
The Azura contract contained the Take or Pay clause, which says that government will pay for the energy produced by the plant, whether it uses it or not.
According to the terms of the PPA, the invoice should be settled 15 business days after the invoice date.
On October 22, 2014, a second agreement was signed, called the Put Call Option Agreement (PCOA), which establishes the formula for determining the amount payable by government, if it has to take over the Plant.
Apart from these signed contracts, Nigeria as host country, also made a commitment to back up the transaction. The Ministry of Finance issued a letter of support to the World Bank Multilateral Investment Guarantee Agency (MIGA) in April, 2014.
The World Bank and the multilateral lenders that funded Azura have long held it up as a model for major infrastructure project investment in Africa. They are unlikely to aggressively pursue repayment, the financier said.
However, if Azura defaults on its loan obligations, this could have serious implications for Nigeria. Any default — even if only technical — would at least temporarily “slam the door” on similar large projects in Nigeria, further squeezing foreign investment, analysts say.
The numerous naira devaluations since 2015 is also a major challenge for the Azura power project sources tell MoneyCentral.