By Babajide Komolafe & Ahmed Olawale
The Federal Government should establish a specialized company that would identify and develop infrastructure projects to enhance planning and financing of such projects, says Mr. Taiwo Adeniji of Africa Finance Corporation (AFC).
He made this call in a presentation on Developing an Appropriate Framework for Energy Infrastructure Financing in Nigeria, delivered at the 2012 Lagos Bankers’ Night organised by the Lagos branch of the Chartered Institute of Bankers of Nigeria (CIBN).
Emphasising the importance of long-term planning to infrastructure development, he said there is need to strengthen the infrastructure planning function in the country.
He said: “It is all about planning. It takes time to develop infrastructure, and private investors need data for long-term decision-making. Nigeria needs a clear integrated least-cost infrastructure development plan (15-20 years, with 5-year rolling plans), with an attendant integrated financing policy.
“Plan to be project-based, and prioritized based on sector needs, inter-sector linkages, scale/expected impact. Specific projects to be allocated for private sector participation should be identified. If possible, government should institutionalize a mechanism to limit/eliminate political interference and ensure timely completion of projects.
“An example is the Indian Project Development Company (IPDC). It was established as a fully government-owned entity charged with developing projects across the different infrastructure sectors, almost to the point of bankability; with other specialized institutions such as Infrastructure Development Company of India (IDFC) and Power Finance Corporation providing requisite financing (debt, mezz and equity) at market terms.
Projects slated for PPP implementation are then procured accordingly, while others are sold to investors for full private sector financing. It is worth emphasizsing that India plans to invest $1 trillion over the next five years, with 50 per cent expected to come from the private sector!
A similar model could also be adopted for Nigeria in the name of Nigerian Infrastructure Projects Development Company. The new company will be backed by specialised financing institutions (Africa Finance Corporation, Nigeria Infrastructure Bank, National Infrastructure Fund, etc). This would also ensure the utilisation of a uniform approach to appraise projects and test their readiness for financing and implementation.”
Adeniji, who is the Director, Financial Institutions and Advisory Services for the AFC, also called for regulatory measures from the CBN and Securities and Exchange Commission (SEC) to enhance ability of banks to finance infrastructure projects.
He said: “Given the long-term nature of infrastructure investments, it is critical that the financial system be able to provide appropriate types of finance. Infrastructure projects require long-term capital at relatively low and stable rates. Nigerian commercial banks are limited in their ability to provide long-term loans for infrastructure projects, largely due to the short-term nature of their liabilities.
“The CBN should therefore institute deliberate measures to enhance maturity transformation in the banking industry, to encourage commercial banks to lend to infrastructure projects.