Ukandu E. Ukandu, Managing Director/CEO of FirstCap Limited, has reiterated that dependable payment structures remain the foundation of bankable gas and power projects in Nigeria.
Speaking at the 2026 Lagos Energy Week hosted by the Society of Petroleum Engineers (SPE), Ukandu noted that despite various technical and regulatory considerations, revenue certainty ultimately determines whether lenders commit funds.
He explained that financiers usually examine three major risk areas — payment security, foreign exchange exposure, and legal enforceability of contracts. Among these, he said, payment reliability continues to pose the biggest concern, largely due to collection inefficiencies, liquidity challenges, and rising outstanding debts within the energy value chain.
According to him, no project can reach financial close without credible assurances that revenues will be collected fully and on time. To mitigate these risks, lenders often require structured safeguards such as letters of credit, escrow accounts with defined payment waterfalls, reserve accounts, sovereign guarantees, and binding take-or-pay agreements.
On currency exposure, Ukandu pointed out that exchange rate volatility complicates projects with dollar-based obligations and naira earnings. While tools like FX-linked tariff indexation, partial dollarisation, hedging instruments, and reserve buffers offer some protection, he cautioned that regulatory delays and limitations often weaken their effectiveness.
He further stressed the importance of airtight contractual frameworks, noting that clear provisions around termination payments, dispute resolution, tariff adjustments, and step-in rights are essential to safeguard investors. Weak legal structures, he warned, can quickly erode project viability.
Although fiscal incentives such as tax holidays may improve returns, Ukandu maintained that they cannot compensate for structural weaknesses.
“Revenue discipline and currency alignment must be prioritised from day one,” he advised, urging project sponsors to embed strong credit support and enforceable offtake agreements early in project design.
He concluded that sustainable financing in Nigeria’s energy sector will depend less on incentives and more on credible, transparent, and enforceable revenue systems that inspire investor confidence.
