31st March, 2012
The Central Bank of Nigeria, CBN, has coughed out N91.93 billion to 15 airline projects in the country, the apex bank disclosed Friday.
The CBN Deputy Director, Development Finance Department, Dr. Muda A Olaitan, made the disclosure at the second WorldStage National Electricity Power Conference in Lagos, southwest Nigeria.
He said the money was released to the Bank Of Industry as at February ending for payment under a N300 billion Power and Airline Intervention Fund, PAIF, launched in March 2010 to bolster the struggling economy.
Alaitan represented Mr. Lamido Sanusi Lamido, the CBN Governor, at the event and did not disclose specific projects to be funded or which airlines had benefited.
Critics say the money will not serve any meaningful purpose as airlines owe banks billions of naira and will end up paying off their debts while sinking deeper.
Analysts have urged weak Nigerian airlines to merge and develop a long term business plan to compete with foreign airlines and engender growth.
“It’s a ‘carry go’ mentality as we speak. Airlines are too weak. They keep incurring debts as they try to make money right away. Most of them will not survive and Sanusi is giving the money to airlines to service their debts to banks and tax payers will end up bearing the heavy burden,” an analyst told P.M.NEWS.
About 10 Nigerian airlines are currently offering commercial flights and experts say the money for 15 airline projects will go to few airlines.
The CBN also disclosed that N85.74 billion has been released to fund 18 power projects across the nation.
In all, the CBN has coughed out N177.67 billion as intervention fund for the two sectors it calls critical to the Nigerian economy.
“Over 28 power projects in different parts of the country submitted application for financing under the Fund, out of which 15 projects have been financed by the PAIF.
“”The projects are mainly captive power projects catering for specific industrial enterprises or clusters. Nine of the power projects approved, had potential generating capacity estimated to be at 582mw, out of which 349.2 mw was additional megawatts generated,” Olaitan said.
He noted that the improvement in the country’s power supply has been as a result of the fund, which is meant to reduce domestic production costs, improve industrial capacity utilisation, enhance competitiveness, lead to employment creation and poverty reduction among Nigerians.
“The PAIF provides seed capital that leverages additional private sector investments into the Nigerian power sector. Equity on power projects is expected to be 30 percent.
“The N85.74 billion approved for power projects implied that project promoters would bring in additional 30 per cent private sector investments into the Nigerian power sector, while the total amount brought in by the investors was N25.722 billion.
“”By providing long-term liabilities to deposit money in banks in the country, the PAIF is assisting the development of long-term bank credits suitable for financing infrastructure projects. The market will allow DMBs to compete with the international DFIs and commercial/investment banks to provide alternative financing sources.
“The concessionaire interest rate of the Fund at 7 per cent together with its long tenor of 10 – 15 years created a stabilising effect on the capital structure of power projects; and makes an otherwise non viable or marginal investment a viable one. It has also at the same time created a cash flow for recurrent expenditure through the interest differential. This was brought about by the average interest rate gap of over 12 per cent. The average lending rate is 19 per cent; it is 7 percent under PAIF,” he said.
The aviation industry in Nigeria has been in crisis for some years. Analysts have argued that it is over praised as most airlines are heavily indebted and have not contributed meaningfully to the economy. Worse, they were said to have contributed to the financial slump of 2008.
Analysts further argue that the work force of those airlines is insignificant with most staff not even paid regularly.
With less than two percent of Nigerians boarding planes and with airlines dragging the economy further down, even as money is often mismanaged, many wonder why they should be bailed out by the taxpayers.
“Sanusi is a smart guy,” the analyst who wanted to remain anonymous said, “he knows airline business is not viable in the country but he wants airlines to pay off their debts to the banks and go down if they want. Taxpayers will bear the brunt in the future.”
By Simon Ateba