Payment Security Still Blocks Financing for Nigeria’s Gas and Power Projects, Says FirstCap MD

Ukandu E. Ukandu, Managing Director and Chief Executive Officer of FirstCap Limited, has reaffirmed that payment security remains the most decisive factor in determining whether gas and power projects in Nigeria can secure financing.

Speaking during a panel discussion on project bankability at the 2026 SPE Lagos Energy Week, Ukandu said that while multiple risks shape financing decisions, payment risk consistently stands out as the key barrier to reaching financial close.

“Every major risk matters, but payment risk is the ultimate deal breaker. Without strong payment security and disciplined collections, no project can attract sustainable financing,” he said.

Ukandu explained that lenders typically assess three core risk pillars - payment reliability, foreign exchange exposure and contract enforceability - with payment reliability posing the greatest challenge across Nigeria’s energy value chain. He pointed to persistent collection inefficiencies, rising arrears and ongoing liquidity pressures as factors that continue to weaken investor confidence.

To strengthen payment security, Ukandu highlighted a range of mechanisms widely used by financiers. These include letters of credit, bank guarantees, escrow accounts with structured payment waterfalls, reserve and sinking funds, sovereign or sub-sovereign backing, and take-or-pay offtake agreements.

On foreign exchange risk, he said volatility remains difficult to manage, particularly for projects with dollar-denominated costs and naira-based revenues. Lenders typically respond with foreign exchange-linked tariff indexation, partial dollarisation for credible industrial offtakers, escrow protections, selective hedging strategies and foreign exchange reserve buffers. However, he warned that indexation alone rarely eliminates exposure because of regulatory limits and timing delays.

Addressing legal and regulatory certainty, Ukandu stressed the importance of enforceable and clearly structured contracts. He highlighted the need for clarity around take-or-pay obligations, termination payments, step-in rights and dispute resolution frameworks. He added that tariff adjustments, licence changes and price controls can significantly affect project viability if not fully addressed at the contracting stage.

While fiscal incentives such as tax holidays and accelerated depreciation can improve project economics, Ukandu emphasised that they cannot compensate for weak fundamentals.

“Incentives make a good project better, but they do not make a weak project bankable. Cash flow reliability and disciplined foreign exchange management must come first,” he said.

He also warned that naira-based incentives may lose value where project revenues are not indexed.

Ukandu concluded by urging industry stakeholders to prioritise revenue security from the earliest stages of project structuring.

“Protect returns at the source. Build strong offtake arrangements with solid credit support and currency alignment to ensure cash is received in full and on time.”