Summary of Proposed Investment
Project Number
10683
Company Name
Niger Delta Contractor Revolving Credit Facility
Date SPI Disclosed
Apr 23, 2001
Country
Nigeria
Industry
other
Projected Board Date
May 24, 2001
Status
Completed
Sector
Finance Companies
Department
Regional Industry - INF Africa
Environmental Category
FI
Previous Events
Approved : Jun 19, 2001
Signed : Dec 19, 2001
Invested : Oct 16, 2003
Project Description
This project involves the establishment of a US$30 million revolving credit facility by IFC, Shell and a local bank. The facility, details of which are still under discussion, would focus on the oil services sector in Nigeria and would provide competitively priced term funding to small and medium-sized local contractors delivering services to the Shell Petroleum Development Company Joint Venture of Nigeria Limited (SPDC JV), primarily in the Niger Delta.
Currently, access to term funding is essentially nonexistent for these contractors. Available credit to these companies is only short-term and very expensive. Local banks lack adequate term finance resources in both Naira and US dollars, and tend to limit their exposure to Niger Delta contractors, because they portray high risks. In addition, interest rates charged to these contractors are usually indexed to the Nigerian Inter-Bank Offered Rate (NIBOR), which is highly volatile. Under these conditions, it is difficult for them to acquire and finance equipment, which in turn prohibits them from competing for larger, higher value-added contracts.
One of the major developmental benefits of the project would be its positive effect on the Niger Delta. The facility would help support the growth of targeted local contractors, and, as a result, make a contribution to relieve unemployment and poverty. Funding under the facility would also lead to technology transfer and more skilled training, which would provide longer term development gains and movement up the value chain. This would also enable local contractors to compete more effectively with foreign companies on certain contracts, which are not currently accessible to them. Ultimately the project would establish a strong base of local service companies, which would produce all around benefits, such as lowering the country''s production costs and increasing the benefits of oil production to the economy in general.
The proposed facility would be the first of its kind for IFC. IFC is actively involved with Shell in working out the structuring and funding arrangements. The facility will also involve a local bank, which is yet to be identified. By financing one third of the required funding for the facility, IFC will play a catalytic role in mobilizing additional term funding, which is not readily available to small oil services contractors operating in the Niger Delta. The facility would also enable targeted contractors to access less expensive US dollar financing and strengthen their financial condition by reducing their borrowing costs. In parallel, IFC''s SME department and APDF are actively working with SPDC JV to put together an estimated US$210,000 capacity building program to support contractors in developing their business.
Currently, access to term funding is essentially nonexistent for these contractors. Available credit to these companies is only short-term and very expensive. Local banks lack adequate term finance resources in both Naira and US dollars, and tend to limit their exposure to Niger Delta contractors, because they portray high risks. In addition, interest rates charged to these contractors are usually indexed to the Nigerian Inter-Bank Offered Rate (NIBOR), which is highly volatile. Under these conditions, it is difficult for them to acquire and finance equipment, which in turn prohibits them from competing for larger, higher value-added contracts.
One of the major developmental benefits of the project would be its positive effect on the Niger Delta. The facility would help support the growth of targeted local contractors, and, as a result, make a contribution to relieve unemployment and poverty. Funding under the facility would also lead to technology transfer and more skilled training, which would provide longer term development gains and movement up the value chain. This would also enable local contractors to compete more effectively with foreign companies on certain contracts, which are not currently accessible to them. Ultimately the project would establish a strong base of local service companies, which would produce all around benefits, such as lowering the country''s production costs and increasing the benefits of oil production to the economy in general.
The proposed facility would be the first of its kind for IFC. IFC is actively involved with Shell in working out the structuring and funding arrangements. The facility will also involve a local bank, which is yet to be identified. By financing one third of the required funding for the facility, IFC will play a catalytic role in mobilizing additional term funding, which is not readily available to small oil services contractors operating in the Niger Delta. The facility would also enable targeted contractors to access less expensive US dollar financing and strengthen their financial condition by reducing their borrowing costs. In parallel, IFC''s SME department and APDF are actively working with SPDC JV to put together an estimated US$210,000 capacity building program to support contractors in developing their business.
Sponsor / Cost / Location
Development Impact
Related ESRS/ERS
Contacts
For Inquiries About the Project, Contact
International Finance Corporation
Oil, Gas and Chemicals Department
Room F8P-202
2121 Pennsylvania Avenue, NW
Washington, D.C. 20433
Oil, Gas and Chemicals Department
Room F8P-202
2121 Pennsylvania Avenue, NW
Washington, D.C. 20433