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Issues As Nigeria Prepares For First Sovereign Green Bonds

As Nigeria prepares to issue the first Sovereign Green Bonds by this third quarter, CHIKA OKEKE examines several inter-agency collaboration, benefits of the bonds and how it would green Nigerian economy.

Prior to Nigeria’s participation at the 22nd session of the Conference of the Parties (COP 22) to the United Nations Framework Convention on Climate Change (UNFCCC) in Marrakech, Morocco, the immediate past minister of environment, Mrs Amina Mohammed, revealed that Nigeria would issue the first N20billion green bond by first quarter of 2017 in collaboration with Nigerian Stock Exchange (NSE).

Green bonds is an innovative and alternative source of funding projects that would reduce emissions and provide robust climate infrastructure needed in Nigeria like renewable energy, low carbon transport, water infrastructure and sustainable agriculture in achieving the country’s Nationally Determined Contributions (NDCs) in line with the Paris Agreement.

The bond known as the first sovereign  green bond is expected to open up the space for International bonds to enter Nigeria for greening the economy as well as attracting foreign investors into the country.

She disclosed that green bond was a viable alternative in raising Nigeria’s Intended Nationally Determined Contributions (INDCs) stressing that the largest bond market is in China where over 40 percent of their bonds are green.

Shortly after the pronouncement, the  ministry of environment in November 2016 issued its Green Bond Guidelines, taking into cognisance the International Capital  Market Association (ICMA) Green Bond Principles (GBP).

As the custodian of the nation’s commitments to UNFCCC, it provided considerable direction to ensure that the key elements needed for identification of the green projects were properly captured.

Working through the Inter-ministerial Committee on Climate Change (ICCC), it engaged various federal government ministries, departments and agencies (MDAs) to identify projects that would green the economy.

In agreement with the minister of finance, Mrs Kemi Adeosun, the projects were to be included in the national budget.

This led to the opening of Green Bond Account by the Central Bank of Nigeria (CBN) after approval from the Office of the Accountant General of the Federation (OAGF).

Due to delay in passage of 2017 budget, the official launch of the sovereign green bonds were delayed.

However, the Green projects is expected to cost about N150billion, while the pilot project to be launched by third quarter of this year would cost about N12.384billion even as the balance would spread across the budget.

The pilot projects are Energizing Education Program (EEP) that would gulp N9.5 billion, Renewable Energy Micro Utility (REMU) for N475million and ministry of environment’s  afforestation programme expected to cost N2.3 billion.

Speaking on federal government’s plans, the special assistant on communications and stakeholders’ engagement to the minister of state for environment, Ms Esther Agbarakwe, noted that collaborations between the ministries of environment and finance helped to assemble the institutional partners needed to launch what she described as Africa’s first sovereign green bond and third in the world.

On the Green Bond Advisory Group ( GBAG), she noted that the ministries of environment and finance established GBAG to enable the federal government tap into the wealth of experience of experts.

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.

“The GBAG meets frequently with its first meeting in January this year that led to a green bonds conference in February where the Acting President, Prof Yemi Osibanjo, was a key note speaker,” she explained.

She noted that GBAG remained the interface between the development partners and the capital market adding that the Debt Management Office (DMO)being the key issuer of federal government debt was currently liaising with the ministry of environment.

“The DMO has displayed its strategy in restructuring federal government’s debt portfolio thereby replacing short tenured bonds with long tenure and high interest rates with lower rates,” she added.

She said with the appropriate framework in place that the green bonds issuance would provide a credible platform to tap into the global market adding that the London Stock Exchange (LSE) has indicated willingness to participate in GBAG to facilitate federal government’s ambition towards the projects.

The global market for green bonds kick-started in 2005 where the European Investment Bank (EIB) issued some bonds and since then, it rose to USD80 billion last year just as China dominated  the market.

Agbarakwe, stated that commitments by signatory nations in the Paris agreement was expected to boost the market stressing that  resources were redirected towards climate friendly projects that would aid global reduction of emissions.

She emphasised that governments Economic Recovery & Growth Plan (ERGP) contained key objectives that were catalysts for issuance of the green bonds.

“In addition to meeting some of the goals in the United Nations Sustainable Development Goals (SDGs), it will also fund projects that have environmental benefits,” she stated.

Agbarakwe said there was the need for fundamental re-orientation of financial flows within the economy to attain Nigeria’s NDC, confirming that the issuance of the green bond would kick-start the process of greening the federal budget and the capital market.

“It will also demostrate to the global community Nigeria’s commitment to achieving its targets in the NDCs,” she concluded.

Earlier, the minister of environment, Ibrahim Usman Jibril, expressed optimism that the issuance of Nigeria’s Sovereign Green Bonds would help in the actualisation of Nationally Intended Contributions (NDCs) adding that Nigeria has well-trained experts to facilitate the projects and programmes.

This he said when he received the division chief, Capital Markets Development Division of African Development Bank (AfDB), Stella Kilonzo, who  led a 4-man delegation to the ministry of environment to brainstorm on issuance of Nigeria’s Sovereign Green Bonds.

According to him, “At the process of preparing the bond prospectus, AfDB indicated that its treasury department is keen to provide guidance to the team while a draft template for the project profiles has been prepared and provided to the lead economist to provide feedback on its content, which we believe it will add value to what we are doing.”

He harped on the need for sensitisation in bond markets to enable participants get acquainted with the processes that would be factored on climate change adding that private sectors would participate actively in the long run.

On Calculation of Economic Rate of Return (ERR), he said, “The ERR has been introduced as an alternative to the IRR in preparing profiles of the projects as AfDB has indicated willingness to provide guidance to the team in ensuring that the approach used in calculating the ERR is credible.”

On her part, Kilonzo, disclosed that the aspects of jobs for youths was very key through the green bonds projects even as she sought for transparency and market development in terms of providing platforms for the issuance like green indexes as seen in other international markets.

“We have had engaging discussions with Securities and Exchange Commissions (SEC) on their preparedness for the green bonds markets and we have highlighted areas of preparations which will include green bonds principles that are usually documented by the regulator so that investors and issuers in the capital market can actually come on board,” she explained.

While disclosing the need to convince investors through market sensitisation, she was optimistic that attracting social investors to the country through the project was very essential.

“We will also work with them so that we will build institutional support from the regulatory perspective because this is capital market development and they will benefit from our experience through our treasury team,” she added.

Kilonzo stated that the Nigerian market was ripe for green bonds issuance which she believed is in line with the bank’s 10-year strategy that is based on the objectives of inclusive and green growth.

 

 

 

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