Project Finance: Nigeria is a country that can be described as a haven of opportunities. A growing population with innumerable opportunities in Agriculture, Commerce, Manufacturing, Infrastructure, Energy, Communication, Transportation, and a host of other fields. For this reason, business plans are made on a daily basis by individuals with a common interest who come together to incorporate companies to enable them carryon business in Nigeria as an entity stricto sensu. The business plans made by these establishments are projects that must be executed, and for these projects to be properly executed, there must be a strong financing force to back it up; this is where the birth of Project Finance takes place. These companies become in search of financiers for their project either locally, or through the channels of foreign participation.


Before shedding light on what project financing entails, it would be appropriate to make clear the meaning of a project. A project is a calculated enterprise carefully planned to achieve an aim. It is a temporary endeavour that has a definite beginning and ending. The end is reached when the objectives for which the project was planned have been achieved, or when the project is terminated because the said objectives cannot be achieved.

Project Finance is the financing of long term frameworks, ventures and open administrations based upon a non-recourse or limited recourse financial structure, in which value used to fund the project are paid back from the income realised from the project[1]. This kind of financing is normally utilised for huge and costly single purpose activities such as toll roads, financial institutions, chemical processing plants and power plants. Usually, a project financing structure involves a number of equity investors, known as ‘sponsors’, a ‘syndicate’ of banks or other lending institutions that provide loans to the operation.


The Lekki Toll gate is a major example of project financing in Nigeria. The Lekki-Epe road was initially constructed by the Jakande administration and completed by the Mudashiru and Mike Akhigbe military administrations in 1987.[2] The construction of the Lekki road can be traced back to 1985, and till date, there have been tremendous developments in the area such as the expansion of the road into a six-lane roadway. Due to the magnitude of the project, it was recommended that the state government might have to collaborate with the private sector under a Private-Public-Participation (PPP) model to handle the project. The project was eventually given to Lekki Concession Company (LCC) to handle as a consortium, and a 30 year concession arrangement for rehabilitation and expansion of the road was granted.

The rehabilitation and expansion work started in 2007 shortly after Babatunde Raji Fashola, SAN became governor, and since then, the project has been financed and maintained over the years through the Toll fees collected from each passing vehicle on a daily basis.

The requirement for project financing stays high throughout the world as more nations require expanding supplies of public utilities and frameworks. Project finance debt is usually sourced from the following[3];

  1. Government export credit agencies
  2. Infrastructure funds
  3. Commercial banks
  4. Investment banks
  5. Development banks
  6. Multilateral agencies
  7. Hedge funds (investment funds that pool capital from accredited individuals or institutional investors and invests in a variety of assets usually with complex portfolio construction and risk management techniques. Hedge funds are made accessible to only certain accredited investors and cannot be offered to the general public.)


There are some parties who have major roles to play in the financing of a project. These parties include;

  1. The project sponsor: This is the person who takes up the lead role in managing the project.
  2. Construction parties to build the assets.
  3. Certifiers to confirm the project is built up to specification.
  4. Insurers to cover insurable risks.
  5. Agent: One of the lenders would be appointed as an agent to act on behalf of the other lenders in administering the loan.
  6. Consultants to provide expert opinions needed.
  7. Lawyers to ensure the required contracts/agreements are in place and properly executed.
  8. Parties to ensure the sale of the end products.


The kind of projects that require a project finance scheme are majorly those that involve a lot of money therefore, some agreements and contracts are put in place to ensure straightforward conducts between the parties involved. Some of these contracts include;[4]


This is the most common construction contract, and its aim is to ensure that the contractor builds and supplies the project facilities in due time and at the agreed price. The agreement usually contains a full description of the project, the agreed prices of all the facilities to be supplied, payment scheme, completion date, and a guarantee to complete the required tasks.


This is an agreement between the operator and the project company. The project company delegates performance to a reputable operator with reasonable expertise under the terms of this agreement. This agreement usually contains a precise definition of the service to be rendered, specifications for payment of fees, and the responsibilities of the operator.


This agreement is made between the project company (the borrowers) and the lenders in order to govern the relationship between them and the basis upon which the loan can be obtained and repaid. This agreement contains general conditions precedents, the duration of the loan, repayment clause, dividends restrictions, illegality clause, representations and warranties, and the interest clause.


This is an agreement between the sponsors of the project that deals with the pre-emption rights, dividend policy, voting requirements and injection of the share capital.


This is an agreement between the first set of creditors of the company in connection with the financing of the project and it usually contains the common terms of the agreement, mode of financing of the project, limitations to the ability of creditors to vary their rights, the voting rights of the creditors, notification of defaults, and order of applying the proceeds of debt recovery.


This agreement is made when the financiers demand that there must be in existence, a direct relationship between them, the operators and the project sponsor, in order to establish circumstances under which the financiers can “step in” to remedy any defaults. It contains a confirmation by relevant parties that the financier can take over the relevant project contracts, obligation of the relevant parties to notify the lenders directly of any defaults by the project company under the contract, the step-in rights and extended periods, right of the lenders to appoint a receiver under the contract, and the terms and conditions upon which the lenders may transfer the borrower’s entitlements under the contract. This contract is an important document in project financing.


It is important to identify the risks involved in project financing, dispense them properly and guarantee that the responsible parties are sufficiently motivated to deal with their risks productively. With a lot of money and parties involved, it is not unexpected that from the commencement of an idea to monetary close, a project finance deal can take years to negotiate. Some of the risks usually considered include;

  1. Construction time, costs and specification
  2. Operational cost and reliability
  3. Supply reliability and quality
  4. Political environment, local hostility and currency inconvertibility
  5. Labour quality and availability
  6. Legal, documentary and tax risk.


  1. It accommodates off balance sheet financing of the project, which will not influence the credit of the shareholders or the government contracting authority, and moves a portion of the project risks to the lenders in return for which the lenders acquire a higher edge.
  2. A project sponsor has no or limited liability to the lenders for breach or default, and the lender’s primary recourse is to the pledged collateral. Therefore, a project sponsor’s financial risk is constrained to the measure of capital commitment to the borrower. This component helps a project accomplish monetary freedom and shields a project sponsor’s assets from the inconveniences of the project.
  3. As a general concern, project financing systems may permit value providers off-balance sheet treatment of liabilities relating to the project, including the debt.
  4. Project financiers evaluate a project based on the merits of the individual project, including the risk allocation. Therefore, the financing terms are often more favourable to a project sponsor than if the lenders were making decisions based upon the project sponsor’s credit.
  5. In project finance transaction, risk is shared among all of the project participants. This risk sharing encourages project participants to perform well and improves the chances of success of the project.


  1. Project finance transactions involve a number of participants whose interests do not always align perfectly, and for a project to be successful, there must be appropriate and economical allocation of risk, which is usually difficult to achieve. Also, risk allocation issues can create tension between the parties and resolving these issues can slow down the progress of the project.
  2. The interest rates charged by project finance lenders are higher than interest rates charged on traditional corporate finance transactions because the transaction structure is more complex and document-intensive. The complexity and higher degree of risk for lenders also translates into higher fees and transaction costs than for other types of financings, and it’s the project sponsors that are responsible to bare such fees and costs. The risk inherent in project financings and the complexity of the projects result in an extensive and expensive due diligence process conducted by the lenders’ lawyers, technical adviser, insurance consultant and other consultants. The risk and complexity of project financing often also result in the need for increased insurance coverage and higher fees or additional charges being imposed by lenders and other project participants (and paid for by the project sponsors) because the lenders and other project participants assume additional risk.
  3. In project financing, borrowers have an increased administrative burden, as they must provide lenders with constant financial information, often consisting of monthly construction reports, financial reports, operating information, causes of delay and corrective actions pursued, and notices following the occurrence of certain significant events.
  4. Due to the non recourse or limited-recourse nature of project financing, the insurance program is very important. To the extent risks can be mitigated or covered off by insurance at commercially reasonable prices and upon commercially reasonable terms and conditions, insurance is required by the lenders.


[1] Project Finance (Investopedia) (accessed on 01 February 2017 at 20:39).

[2] Nairaland Forum on Facts on the Lekki Toll & the Tinubu Connection by Aloyemeka. (accessed on 01 February 2017 at 19:39)

[3] A Primer to Public-Private Partnerships in Infrastructure Development available online at (accessed on 02 February at 01:48)

[4] John M. Kwaku  Mensah, “Contractual Framework of Project Finance” available at  (accessed on 03 February 2017 at 21:07)