Bridging Nigeria’s Infrastructure Gap By M. K. Ahmad Director General National Pension Commission – Nigeria

1. Bridging Nigeria’s Infrastructure Gap By M. K. Ahmad Director General National Pension Commission – Nigeria 18 November, 2008

2. Outline of Presentation • State of Infrastructure in Nigeria • Funding of Infrastructure • Government Initiatives & Support • Opportunities for Infrastructure Financing in Nigeria • Way Forward for Africa & Emerging Markets • Mind the Gaps • European Opportunities to African Investors 18 November, 2008

3. Infrastructure Gap in Nigeria • Fairly extensive infrastructure suffering from neglect and over utilisation • The foregoing has created infrastructure gap in Nigeria • Estimated annual demand - supply gap of 6,000 MW of electricity • ageing plants – 30 years old • Per capita generation – 50W, weak generation, transmission and distribution infrastructure • Only 48% have access to portable water • Low tele-density in the range of 300 telephone lines to 1,000 persons • 15.3% of about 195,200km length of Nigerian roads are adequately paved 18 November, 2008

4. Infrastructure Gap in Nigeria ..cont’d • The railway system currently contributes only 1% to national transportation • Current urbanization levels are estimated at 49% with an annual growth rate of 4.8% as against 2.6% for South Africa • Investment of over $100 billion required for infrastructure development over the next six years in four infrastructure areas: • Power ($ 18 – 20 billion) • Rail tracks ($ 8 – 17 billion) • Roads ($ 14 billion) • Oil and Gas ($ 60 billion) 18 November, 2008

5. Nigerian Pension Fund Investments • Pension Fund Assets: • Generated large pool of long term investible funds for the first time in Nigeria • About US$8.4 billion generated. Assets increased by 22.37% between January and September, 2008 • At an estimated growth rate of 30% less than US$100 billion will be generated • PenCom sets standards for investment, but has no power to compel operators to invest in any asset class • Investments by operators are purely business decisions provided they don’t violate regulations • Non-existence of alternative asset classes as less than 2% of pension assets is invested in corporate bonds; infrastructure bonds yet to be developed 18 November, 2008

6. Government Initiatives & Support • Government’s programmes and strategies to facilitate private participation in infrastructure financing: • Government’s 7 – Point Agenda • Commitment to the rule of law • Independent Judiciary • Independent Regulatory Agencies (Telecommunication, Power, Concession Commission) • Tariffs are being deregulated in some sectors to allow for cost recovery; Multi-year-tariff-order (MYTO), Model Power Purchase Agreement(PPA) & Vesting Contract prepared • Public Private Partnerships to support the Governments 7 – Point Agenda • Public Procurement Act 18 November, 2008

7. Government Initiatives & Support ..cont’d • Fiscal Responsibility Act currently at the National Assembly • Infrastructure Concessioning Regulatory Act: • Concession of 52 infrastructure, 18 Seaports Terminals, etc • Privatization and Commercialization Act: • 83 State Owned Enterprises have been privatized since 1999 • Nigerian Independent Power Project (NIPP) which is expected to: • Generate additional 4,777MW • Expand and strengthen transmission and distribution capacities 18 November, 2008

8. Opportunities for Infrastructure Financing in Nigeria • There are ample opportunities for the development and financing infrastructure development in Nigeria • Demand – supply and financing gaps • Rapid development of the market for long-term debt • Diversified and deep resources base (agriculture, oil and gas, solid minerals) • Annual GDP growth of non oil sector of about 11% • Favourable credit rating for Nigeria: BB- by Standards & Poor in 2007 for foreign currencies and BB for domestic currencies • Issuing sovereign bonds at the international capital market • Secondary bond market enhanced, Primary Dealer/Market Makers established • Nigeria has a ready-made market with a population of about 150 million • Huge Diaspora population that could be exploited 18 November, 2008

9. Way Forward for Africa and Emerging Markets • There is need for sectoral reforms • Adequate legal framework for concessions • Efficient mechanism for contract enforcement • Establish sound and stable regulatory framework • Tariffs must reflect full cost of recovery at a realistic pace, else infrastructure sector subsidy mechanism should be established • Policy consistency and commitments to established policies • Development of transparent award processes • Building and strengthening local institutions • Solicitation of support of the World Bank, bilateral and multilateral agencies for project development and financing strategies and capacity building 18 November, 2008

10. African Investors and European Opportunities • Europe seen as the yard stick until the recent financial crunch • Very low income and modest sized available investible funds • Few and in experienced institutional investors • Inadequate knowledge of the opportunities • Underdeveloped institutions to support offshore investments 18 November, 2008

11. Thank You!!! National Pension Commission 174 Adetokunbo Ademola Crescent Wuse II, Abuja - Nigeria +234 9 4138736 – 40 +234 9 8703389 – 9 info@pencom.gov.ng www.pencom.gov.ng 18 November, 2008