NCDMB leads search for new financing for Africa’s oil industry

Sopuruchi Onwuka

Key stakeholders in the African petroleum industry are exploring a combination of reinvestment funds, idle private sector funds, development banks and local credit institutions as new sources of project financing.

The scramble for new financing solutions comes in response to the closing international credit window against fossil fuels as climate activists and governments of energy intensive economies drive global migration of energy demands away from fossil to low emission renewable energy options.

 Following the global pledge to net zero emission by 2050 under the United Nations Framework Convention on Climate Change (UNFCCC), the industrialized nations of Europe and America have pressured multilateral financial institutions including the World Bank, the International Monetary Fund (IMF) and fund managers to stop all forms of lending and investments in fossil fuel development.

The shut down o f lending structures for the fossil industry has posed serious financing challenge to oil and gas exploration and development projects in Africa, leading to underinvestment and production declines in many producing countries including Nigeria and Angola.

In Nigeria, the Nigerian Content Development and Monitoring Board (NCDMB), which drives value derivation from petroleum industry to stimulate growth in the domestic economy, has directly intervened in pushing some stalled petroleum industry projects to commissioning. But funding remains one of the biggest challenges in the industry.

At various industry conferences and sundry summits, the Executive Secretary of NCDMB, Engr Simbi Wabote, has challenged African governments to rise to the task of funding the industry as economic and security investment, warning that the continent would suffer acute economic crisis if its petroleum industry falls vulnerable to hostile energy policies.

Currently, the NCDMB is providing strategy leadership to stakeholders in the African energy industry on best options for independent project financing in the hydrocarbon industry. The agency hosted a pan continental policy dialogue in Lagos where it provided platform on which development banks, government agencies and oil and multilateral petroleum producing bloc laid propositions on overcoming financing challenges confronting petroleum projects in the continent.

During the conversation at the African Local Content Investment Forum (ALIF) hosted in Lagos, the African Petroleum Producers’ Organization (APPO), Africa Export-Import Bank (AFREXIMBank), industry captains and government agencies agreed on the need for new funding mechanisms for oil and gas projects in Africa.

The agencies and investors explored local replacement for international financing sources as the new pathway to growth in the industry.

Engr Wabote told delegates at the forum that African oil-producing countries would still rely on their hydrocarbon resources to fuel their developmental and economic activities. Sustainable energy supply, according to him, requires funding, investment, and technology. 

He pointed at acute energy deficit as the reason for poverty, conflicts, migration, brain drain very low human development index in the continent. 

To address the problem of funding, Engr Wabote called on the African Export-Import Bank (AfreximBank) which supports several oil and gas deals in the continent, the African Development Bank (AfDB), and other funds from Development Financial Institutions (DFIs) to fund hydrocarbon development projects in the continent.

He also recommended that credible businessmen in the continent could also be motivated to pick interest in the industry, adding that “there must be a means of aggregating the various funds so that big-ticket funding transactions can be carried out.” 

In his comments, the Secretary-General, African Petroleum Producers’ Organization, (APPO), Dr. Omar Farouk Ibrahim, pointed out that the oil and gas industry in Africa would need a new development model to survive the energy transition. 

“The model shall also seek to emphasize a continental-wide approach to addressing the funding challenge, the capacity development challenge, the lack of cross-border and regional energy infrastructure challenge, the technology deficit challenge and the underdeveloped energy market challenge, using the African Continental Free Trade Agreement as an enabling vehicle,” he said. 

On sources of finance for energy projects in Africa in the absence of the traditional financiers, the APPO scribe recommended that various oil-producing countries should enact laws that provide for a portion of windfalls from oil and gas sales to be re-invested in the industry. 

According to him, “we need to find ways of getting African oil and gas producing countries governments to commit a certain percentage of the windfalls to a special fund for the sustenance of the oil and gas industry during the transition period. A guaranteed source of revenue is the only guarantee for the success of the new order we want to see in Africa.” 

Ibrahim added that revenue shall not come from the private sector alone because the issue is a matter of national security. He insisted that “none of the financial institutions operating in Africa today can afford to provide all the funds required for the oil and gas industry in Africa to operate and grow, and at the same time meet its original mandate.” 

Acknowledging the impact of the global energy transition on investment philosophies of international operating companies and financial institutions, the Managing Director of AfreximBank, Dr. Benedict Oramah stated that African countries still rely on fossil fuels for growth and sustainable development, hence there is a need to continue financing oil and gas development in the continent to avoid destabilizing their economies. 

The Managing Director who was represented by the Director and Head Advisory and Capital Markets, Mr. Ibrahim Sagna assured of the bank’s commitment to the African oil and gas sector, pointing out that it had extended loans to players in the industry to the tune of $5bn by the third quarter of 2021. 

He said the bank would continue to finance economically viable oil and gas transactions and would work with stakeholders to explore the feasibility of the Africa Local Content Development Fund. 

Minister of State for Petroleum Resources, Chief Timipre Sylva spoke at the event and said that sustainable funding is required in all aspects of the African petroleum industry, including upstream field development projects, pipelines, depots, terminals, refineries, petrochemical plants, and oil & gas research & development and training institutions. 

He regretted that several regional development projects have been constrained by funding, including the West African Gas Pipeline (WAGP) and the Trans-Sahara Gas Pipeline (TSGP). 

Represented by the Permanent Secretary, Dr. Nasir Sani Gwarzo, the Minister said the Africa Continental Free Trade Area agreement and its growth aspirations can only be actualized if the continent has a vibrant oil and gas sector, in view of the oil industry’s capacity to harness resources from other sectors.

The strategies advanced at the summit form part of the concerted efforts to overcome the decision of western nations and their financial institutions, and international operating oil companies to suspend funding of new investments in hydrocarbon projects because of their advocacy for energy transition and green energy. 

The rally by African institutions is also intended to respond to the sustained push by western nations for Africa to abandon her hydrocarbon resources by attracting or deploying funding to the oil and gas industry and is coming on the heels of COP26 event held in Glasgow in late 2021where leading advocates of energy transition made fresh commitments to curb methane emissions, align the finance sector with net-zero by 2050, ditch the internal combustion engine, accelerate the phase-out of coal, and end international financing for fossil fuels.