Jan 2019 Financial Report:Nig banks rejects solar equipment as collateral

The report for the period of January 2019, explained that there is no project
financing product available in Nigeria that lets vendors borrow against a
cash flow stream, adding instead, all local financing in Nigeria requires the
developer to provide a physical asset as collateral.
According to bloomberg it is noted that lenders do not also typically accept
solar equipment as collateral and require borrowers to own real estate; as
a result, developers are mostly financing projects through their own balance
sheet, either in U.S dollars, if they are a multinational corporation, or in
naira in the case of local developers.
According to the report which also projected the potential trend for C&I
solar market in Nigeria, most operators interviewed stated their most
preferred reform in the market should be government abolition of import
duties for solar components at ports, followed by cost reflective electricity
tariff; and then review of the 1 megawatts captive generation license of the
Nigerian Electricity Regulatory Commission (NERC).
Despite the reported lack of interest of commercial banks, the report
however pointed out that Nigeria’s power outages are the primary and
dominant enabler of the C&I solar business in the country with developers
interviewed by Bloomberg agreeing unanimously that they can only be in
business today because of the poor state of the nation’s electricity grid.
It added that this was most pronounced in rural areas, but also in cities
such as Lagos or Abuja, adding that power outages in Nigeria were usually
unpredictable and ranged from four to 15 hours on average per day, across
the country. “Therefore, C&I customers expect developers and EPC
companies to provide them with a guarantee on total system reliability.
Since almost all developers use a combination of solar, batteries, grid and
diesel generators, most of them guarantee their systems will provide power
for 98% or more of the time over the year. Bloomberg says “the government
had some success in boosting generation capacity, but transmission and
distribution remain a bottleneck.
No developer interviewed by Bloomberg believes that the grid will improve
in the next three years. Most developers believe it will get worse and
potentially collapse, and conclude that the future of power in Nigeria
consists of decentralized power systems,” the report listed most of the
major barriers to more C&I solar in Nigeria to include financial, from debt
availability to credit risk and foreign exchange hedges, adding, “many
developers in Nigeria told Bloomberg they wish that import tariffs would be
reduced.”
The report says: “Revenue for C&I solar projects are always in naira.
International developers need to convert this to foreign currency. The CBN
allocates U.S. dollars to local banks but applies restrictions on converting
Nigerian naira into U.S. dollars. This is a huge risk, particularly if a
company holds U.S. dollar debt.
The report says, “Batteries must typically be replaced after 3-10 years of
operation. These costs occur in U.S. dollars, whereas project revenue is in
naira. If left unhedged, the battery replacement can significantly reduce
project returns if the naira depreciates. Developers reduce credit risk by
installing advanced management systems to enable them to remotely cut
off systems for non-paying customers.”

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