Nigeria: Govt Approves $2.571bn Loan Facility for Gas Pipeline

Nigerian Senate (file photo).
5 March 2020

Abuja — The federal government wednesday approved the issuance of $2.571 loan facility classified as a sovereign guarantee to fund what it described as engineering procurement and construction (EPC) contract for the Ajaokuta-Kaduna-Kano gas pipeline project.

Briefing journalists at the end of the weekly Federal Executive Council (FEC) meeting in the State House, Abuja, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said the approval was sequel to the presentation she jointly made with the Minister of State for Petroleum Resources, Chief Timipre Sylva, which sought the council's approval for the facility said to have been earlier approved by FEC in 2017.

According to her, yesterday's approval was a revised lower cost of the facility with 10 per cent discount from the initial sum of $2.89 billion approved in 2017 by FEC.

She explained that only 15 per cent of the sum would be paid by the Nigerian National Petroleum Corporation (NNPC) while the balance of 85 per cent would be footed by a Chinese company, China Shure.

She said an extensive review of the project had been done and it had been found that the project would have the capacity to repay the loan, adding that the facility will only attract 3.7 per cent interest rate with 12 years repayment period and three years moratorium.

"The memorandum was seeking council's approval for the issuance of a sovereign guarantee to the tune of 85 per cent of the engineering procurement and construction (EPC) contract for the Ajaokuta-Kaduna-Kano project which we call AKK.

"This is not a new contract. It was previously approved by council in 2017 in the sum of $2.89 billion. The memo of today is at a revised cost of $2.571 billion equivalent to a 10 per cent discount of the original sum.

"The previous contract was a contractor financing model. The contract that has been approved today is an EPC lump sum contract with the NNPC required to pay 15 per cent of the contract amount while the 85 per cent will be provided by China Shure of China in the form of loan facility with a sovereign guarantee.

"This is a facility that has an interest rate of plus 3.7 per cent with a 12 years repayment period and three years moratorium period. We have done an extensive review of this project and we are satisfied that the cash flows from the Ajaokuta-Kaduna-Kano gas pipeline project is sufficient to pay the facility itself," she said.

Ahmed who described the project as one of the cardinal policies of the federal government, added that it is strategic for national development with a lot of prospects that will be beneficial to the country.

Enumerating the prospects of the project, Ahmed said it would boost industrialisation, spur industrial growth, create employment, increase revenue, encourage export and reduce import.

She also said the project would be environmentally friendly, eradicate gas flaring, and reduce carbon footprint, among other benefits.

"It will also improve the health of the communities of the oil producing areas where gas flaring currently takes place. It will also reduce the carbon footprint and comply with the climate control treaties that Nigeria has committed to," she added.

Responding to a question on the possible impact of the current fall in the prices of petroleum products as a result of the outbreak of Coronavirus on the 2020 budget, the minister said the government was studying the situation.

She said a midterm review would be carried out later, and if the revenue target is negatively affected, "we will have to do some revisions in the budget by way of budget adjustment."

She added that crude oil production is now 2 million barrels per day and some times, 2.1 million barrels per day production volume is recorded, which she said would cushion the effect of the price fall.

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