The Dentons Nigeria Power Series comprises briefing notes on the Nigerian power sector. In this second instalment, we will consider some key consideration for unlocking debt finance for funding the development and operation of independent power projects (IPPs) in Nigeria and provide an overview of some regulatory reform and policies that, if implemented, will help to stabilise and attract much-needed investment into the Nigerian power sector.
The majority of an IPP's capital costs will be financed by the commercial banks and development financial institutions that typically finance power projects (the Lenders) (alongside a smaller portion of equity funding provided by the developers of the IPP (the IPP Developers)). Consequently, satisfaction of the Lenders' bankability requirements will be a critical precondition to funding the IPP on a limited-recourse or non-recourse basis and therefore a key consideration for the IPP Developers. Reference to "Lenders' bankability requirement" means the Lenders' expectation that material project risks relating to the IPP have been assessed and allocated satisfactorily to a project counterparty that is able to bear such a risk or, if retained by the IPP, is mitigated to the satisfaction of the Lenders.
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