Payment Security Remains Biggest Barrier to Bankable Gas and Power Projects — FirstCap MD Calls for Structured Offtake, FX Discipline, and Enforceable Contracts to Unlock Energy Financing

Ukandu E. Ukandu, Managing Director/CEO of FirstCap Limited, a leading 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.

On legal and regulatory certainty, Ukandu stressed the need for contracts that are enforceable and clearly structured, particularly around take or pay obligations, termination payments, step in rights, and dispute resolution frameworks. He added that factors such as tariff adjustments, licence changes, and price controls can significantly affect project viability if they are not fully addressed at the contracting stage.

While fiscal incentives such as tax holidays and accelerated depreciation can strengthen 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 noted that naira based incentives may lose value if project revenues are not indexed.

He concluded by urging industry players 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.”

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