Lenders and senior industry figures have cautioned that the high-risk financial position of Nigeria’s Distribution Companies and continued ambiguity in regulatory and contractual arrangements are major obstacles to securing funding for new grid-connected power projects. The concerns were raised during panel discussions at the Lagos Chamber of Commerce and Industry Power Conference held in Lagos.
Speaking at the session, the Senior Vice President at the Stanbic IBTC Infrastructure Fund, Jumoke Ayo-Famisa, outlined the careful scrutiny that lenders apply when reviewing embedded or grid-scale project proposals. She explained that the first issue financiers examine is the identity and reliability of the off-taker, along with the nature of the contract governing power supply.
She noted that in a state such as Lagos, where distribution is shared between Eko Electricity and Excel Distribution Company Limited, the clarity of the contracting party is essential for assessing risk. According to her, the type of agreement also carries weight. Lenders want to know whether the developer is handling only the generation component or whether the agreement covers distribution and revenue collection as well.
Ayo-Famisa stressed that the collection process is a central concern. She said financiers must determine whether project revenues would be mixed with the broader cash flows of the distribution company or whether they would be protected through ring-fenced arrangements. The structure of the cash flow waterfall is a critical point in this review.
The most significant barrier, she said, remains the heavy indebtedness of the legacy DisCos. Their high leverage raises doubts among financiers about payment security and creates hesitation about linking new projects to entities already burdened by unresolved liabilities. For lenders, confidence in the project’s cash flow remains paramount.
Ayo-Famisa also pointed to tariff uncertainty as an ongoing challenge. She observed that some states have issued clear guidance indicating the absence of subsidy, while others are still considering approaches for lower-income consumers. This leaves questions about who bears responsibility for tariffs and whether project sponsors will have the ability to adjust rates in line with rising costs or will be subject to regulatory delays.
She noted that such uncertainties contrast with more predictable frameworks found in other markets, where tariff structures and adjustment mechanisms are clearly defined. She emphasised that these issues must be resolved to unlock sustainable investment in Nigeria’s power sector.
