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Nigeria: Dollar Scarcity Threatens $900m Azura Power Plant’s Operations

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The current dollar shortage in Nigeria may threaten the smooth operations of the Azura-Edo power plant as the company which provides a tenth of the country’s power needs struggles to meet its obligations to its creditors, the Financial Times reported yesterday.

The World Bank-backed power plant is reportedly at risk of a default on its loan payments because of a severe dollar shortage in Nigeria, the continent’s biggest economy,

The $900 million independent power plant located in Edo State has been unable to source dollars through the Central Bank of Nigeria (CBN), which has restricted access to the greenback in an effort to support the local naira currency, according to an industry executive.

“They have the funds (in naira) — they just can’t make the payment because they’re in the queue for dollars at the central bank, and they’re just aren’t enough,” the medium quoted the source, a financier, as saying.

But there are persistent fears that any default, even if only technical, would pose a setback for similar large projects in Nigeria, further squeezing foreign investment.

“If a project like this can’t get dollars then what are you really saying?” the Financial Times quoted the source to have said.

The dollar shortage has been driven by a precipitous fall in the price of oil, which provides 90 per cent of the country’s foreign exchange, as well as a drop in remittances and an exodus of portfolio investors.

In a statement in response to questions about a potential default, the Managing Director of Azura Power West Africa, Mr. Edu Okeke, said that Nigeria has faced a “tsunami of challenges.”

“The government is fully aware of the need to unify the rates and clear the imbalance between the supply and demand for hard currency,” he said. “Indeed, in recent weeks, the central bank has already taken welcome steps in this direction,” he said.

Financial Times quoted an unnamed senior CBN official as saying that it told Azura to seek dollars in CBN’s official Investors and Exporters (I&E) FX channel in July when the company told the bank it was having trouble sourcing dollars and could default in November.

“We value Azura — we are one of their cheerleaders and we know they are doing very well,” the official said.

“But when Azura approached us, we couldn’t have treated them separately because that would mean opening up a floodgate of companies coming to us to say ‘sell to us’ and we would also be accused of crony capitalism.”

The CBN has for months held on to its dollars “because we had to understand the full effects of the pandemic on the economy and not fritter away the country’s reserves,” the official said.

But in recent weeks, it has started selling $25million a week in the Investors and Exporters (I&E) FX channel in response to the shortage.

“That’s $100million every month, and November is still two months away,” the official said.

“So if they play their game well, they should be able to source enough dollars to fend off any default,” it added.

Azura produces 460MW of power, receives payment in local currency and has enough naira to meet its obligations, the industry executive said.

Azura, which is backed by London-based private equity firm, Actis, as well as by the CDC, the UK government’s development investment arm, has been held up as a model for how international investment could be deployed to fix the mass power shortages in the country.

The project’s $686million in debt financing was raised in 2015 from 15 lenders — a reflection of the high risk associated with Nigeria’s power sector — led by the International Finance Corporation (IFC) and including development agencies from France, Germany and the Netherlands.

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