Government’s ‘green bond’ to drive Nigeria’s renewable energy

With the recent launch of the government’s Economic Recovery and Growth Plan (ERGP) and signing of the budget, all is now set for the issuance of the Nigeria’s “green bond” to fund environmentally focused initiatives.

The initiative has resulted in a plan to issue a N150 billion in green bonds over the next few months with a pilot issue of N12.384 billion in the 3rd quarter of 2017 and the balance over the course of the budget year.

This has been possible through the collaboration between Ministry of Environment and Finance that ensures continued institutional partnership necessary to achieve what would be Nigeria and Africa’s first sovereign green bond and the worlds third.

The global market for green bonds took off in 2005 with an issuance by the European Investment Bank (EIB), since then the market has grown significantly to an annual issuance market last year of USD80 billion.

Green bonds are like regular bonds, with a slight difference – they can only be used to fund projects that have been identified to have environmental benefits and their contribution to emissions reduction clearly articulated. The global market for green bonds is expected to exceed last year’s amount and China remains a dominant participant in the market.

Issuances to date have been largely by corporates and parastatals with the first sovereign issuance in November of last year for Eur750m by Poland and a follow on by France in January of 2017 for Eur7 billion. Commitments by signatory nations in the Paris agreement are expected to boost this market as resources are redirected toward development objectives that are sustainable from a climate perspective and contribute to global reduction in emissions.

Nigeria had some milestones with the Federal Ministry of Environment (FMEnv) under the leadership of the Minister of State for Environment, Ibrahim Usman Jibril significantly progressed a process that started in September of 2016 with a stakeholders forum that attracted key development partners, capital market operators and public sector institutions.

To enable the Federal government draw on a wide arrange of expertise in progressing and developing the issuance of the green bond, the Ministry of Environment and Finance established the Green Bond Advisory Group (GBAG). The GBAG is made up of development partners (World Bank, DfID, AfDB, & IFC), Capital Market Operators (Nigeria Stock Exchange, Capital Assets, Chapel Hill Denham & Stanbic IBTC) and Climate Bonds Initiative, London.

In November of 2016 the Ministry issued its Green Bond Guidelines drawing from the International Capital Market Association (ICMA) Green Bond Principles (GBP). Working through the Inter-Ministerial Committee on Climate Change (ICCC), it engaged various Federal Government Ministries Departments and Agencies (MDAs) to identify projects with green credentials that will provide the foundation for issuance of the green bond. In agreement with the Minister of Finance (MOF), the projects are required to be included in the budget approved by the National Assembly and assented to by the President.

Nigeria green bond is programmed to fund a N20billion Energizing Education Program (EEP); N1.3 billion Solar Unit Distribution programme; N4.4 billion Bus Rapid transport in Abuja and N2.8 billion afforestation scheme.

The Special Adviser on Communications and Stakeholder’ Engagement to Minister of Environment, Esther Agbarakwe said “with the signing of the 2017 budget recently by the Acting President, Professor Yemi Osibanjo, the government has affirmed the allocations to some of the identified projects. The EEP for N9.5 billion, the Renewable Energy Micro Utility (REMU) for N475m and FMEnv’s Afforestation for N2.3 billion for a total of N12.38 billion.

“The Ministry of Environment as custodian of the nations commitments under the United Nations Framework Convention on Climate Change (UNFCCC) has provided considerable direction to the process of issuance to ensure that the key elements needed for identification of projects that will meet the green credentials are in place.

Agbarakwe explained that to deliver on the Nigeria’s Nationally Determined Contribution (NDC) will require a fundamental re-orientation of financial flows within the economy. “Capital will need to flow toward low-carbon, climate resilient opportunities and away from carbon intensive, polluting activities or those that exacerbate climate vulnerability leading to poverty, insecurity and reduced health quality.

“The issuance of the green bond will begin the process of green the federal budget and the capital market. It will also demonstrate to the global community Nigeria’s commitment to achieving its targets in the NDCs.

“ It adds to the cocktail of capital products that are being explored in ensuring resources are available to fund the FG annual budget. On a strategy level, it provides a platform for DMO to achieve the objective of extending tenor of the FG debt portfolio and also reduce interest cost. It would also establish a framework by which sub nationals and corporate can tap into the green bond market.”