By Babajide Komolafe
Managing Director/CEO of FirstCap Limited, Mr. Ukandu E. Ukandu, an investment banking firm and subsidiary of First HoldCo Plc., has reaffirmed that payment security remains the most decisive factor in determining whether gas and power projects in Nigeria secure financing.
He shared this perspective during a panel discussion on project bankability at the 2026 SPE Lagos Energy Week.
Ukandu noted that although several risks influence financing decisions, payment risk consistently emerges as the key barrier to financial close.
“Every major risk matter, but payment risk is the ultimate deal-breaker. Without strong payment security and disciplined collections, no project can attract sustainable financing,” he said.
He explained that lenders typically evaluate three core risk pillars, payment reliability, foreign-exchange exposure, and contract enforceability, with payment reliability presenting the greatest challenge across Nigeria’s energy value chain. Persistent collection inefficiencies, rising arrears, and liquidity pressures continue to weaken investor confidence.
To enhance payment security, Ukandu highlighted mechanisms widely used by financiers, including letters of credit, bank guarantees, escrow accounts with payment-waterfall structures, reserve and sinking funds, sovereign or sub-sovereign support, and take-or-pay offtake agreements.
Addressing foreign exchange risk, he noted that volatility remains difficult to manage, especially for projects with dollar-denominated costs but naira-denominated revenues. Lenders typically mitigate this through foreign exchange -linked tariff indexation, partial dollarisation for credible industrial offtakers, escrow protections, selective hedging, and foreign exchange reserve buffers. However, he cautioned that indexation alone seldom eliminates exposure due to regulatory limits and timing delays.
SOURCE: VANGUARD NEWS PAPER
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