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IFC's Board Approves Support for Credit Facility in Nigeria's Niger Delta


L. Joseph
Phone:  (202) 473-7700

Fax:  (202) 974-4384

E-mail:  ljoseph@ifc.org


Washington, D.C., June 20, 2001—The Board of Directors of the International Finance Corporation has approved the establishment of an initial US$30 million credit facility targeting the development of local oil sector small and medium enterprises (SMEs) in Nigeria’s Niger Delta.  By providing financial and technical assistance, this project will help strengthen service contractors operating in this critical area of the country.

The Niger Delta Contractor Revolving Credit Facility will target SMEs—either locally owned or employing indigenous Delta residents—engaged in oil field services, such as mechanical and petroleum engineering and design, software development, pipeline maintenance, and environmental work, and help them compete more effectively.  Ultimately, the facility will help build up a strong base of local service contractors, thereby producing comprehensive gains like greater employment, more access to business opportunity, poverty alleviation, increased links between the oil and non-oil sectors, and broader benefits of oil production to the economy in general.


Peter Woicke, IFC’s Executive Vice President, thanked the Board for its support of the project and said, “We recognize that the insufficient flow of benefits to local communities has been one of the main problems in the Niger Delta.  We also realize that this project presents risks, as we will be working in a challenging environment.  However, we believe that we in IFC need to manage those risks, not avoid them.  We want to engage and be part of a solution. Worthwhile initiatives like this can be among the first steps to make a critical contribution to local beneficiaries and to address some of the problems in the Niger Delta.”


Woicke added that the project is consistent with IFC's mandate, which is to reach out to frontier regions such as the Niger Delta and make a difference when it is able to do so.  “We strongly believe that the facility is a small but important first step in increasing local content in the petroleum industry.  It is designed specifically in response to requests from within the region and based on IFC’s significant due diligence in the Delta.  Historically, local contractors have lacked access to capital, limiting their ability to grow.  The available credit for these companies has been short-term and very expensive.  Under these conditions, it is difficult for them to acquire and finance equipment purchases, which in turn prohibits them from competing for larger, higher value-added contracts to move their businesses up the value chain and technological ladder.  The facility will also enable them to access medium-term, less expensive U.S. dollar financing and strengthen their financial situation by reducing borrowing costs,” he said.


IFC, Shell,  and a local Nigerian bank—an existing IFC client—will partner on this initiative, sharing risks on each sub-loan.  The local bank will originate and execute individual transactions which will require review and clearance by IFC.


In addition, IFC is supporting a parallel technical assistance program, estimated to cost $210,000, which is designed to improve the business prospects of local contractors.  The World Bank Group’s Small and Medium Enterprise department and the Africa Project Development Facility—a technical assistance advisory service for African SMEs—are actively working with Shell to put this training program together.


The facility builds on lessons learned from past SME transactions and is designed to be sustainable.  The involvement of Shell will mitigate certain business risks, which are often associated with SMEs; the local bank will be encouraged to reach the target market through sharing its financial exposure with IFC and Shell; and, a high exposure by the local bank will ensure the selection of creditworthy transactions.  In a second phase, IFC intends to expand the project scope by working with other local banks and oil companies to reach a greater number of contractors.


An information session will be conducted in the Niger Delta region to explain in more detail about the facility and to receive further feedback from interested parties.  The project will complement existing credit lines extended by IFC to Nigerian banks by focusing on a more difficult market and assisting the local banking community to serve the Niger Delta market.  


IFC, which will be committing up to $15 million to this facility, has played an active role in structuring this project and will continue to have a number of important roles in the future, such as leveraging its funds and providing a demonstration effect for others to follow;  ensuring that the facility is managed in a transparent manner, which is very important in this sensitive region; acting as a neutral partner to ensure that the other two partners participate fully in mitigating risks; and, at a later stage, IFC may assist in spinning off the facility into a new financial institution focusing on the services sector.


The mission of IFC, part of the World Bank Group, is to promote sustainable private sector investment in developing countries as a way to reduce poverty and improve people's lives. IFC finances private sector investments in emerging markets, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses



BACKGROUND INFORMATION

NIGER DELTA CONTRACTOR REVOLVING CREDIT FACILITY



The Niger Delta accounts for the bulk of Nigeria’s oil and gas production and reserves.  Development in this region has, however, been sluggish and there are risks associated with doing business there.  Historically, as in the rest of Africa, the main beneficiaries of the oil sector have been foreign companies because local production and service companies have not been much involved in the sector.  To address the development and social issues in the Niger Delta, the democratically elected Nigerian government of President Olusegun Obasanjo has launched a number of initiatives such as a new revenue sharing formula with the nine oil producing states. As a result, these states will now receive 13 percent of the oil revenues instead of the previous 3 percent.  In addition, the government is supporting an increased participation of local companies in the development of the country’s oil reserves.


The project is consistent with IFC’s current global strategy of assisting SMEs and increasing indigenous content, particularly in extractive industries, through linkages with a multinational company providing a market for SMEs, similar to recent projects in Argentina and Kazakhstan.  The project is also in line with the World Bank Group’s (WBG) country strategy as well as the Bank’s and IFC’s oil and gas strategy for Nigeria, which targets local production and service companies, and is supportive of the government’s objective of increasing local content.  


The project is in compliance with existing WBG environmental policies and IFC environmental procedures for financial intermediary lending.  IFC anticipates minimal environmental impacts and will not finance Category A (i.e., significant environmental impact) transactions under this facility.  In addition, WBG policies and guidelines will be applicable to loans made under the facility.  IFC has consulted with the potential beneficiaries of the proposed facility on three separate occasions in the Niger Delta.  IFC staff will closely monitor the financial institution’s and borrowers’ capacity to ensure compliance with WBG environmental policies. In addition, IFC intends to conduct further information sessions in-country with local communities, trade and civic associations, and NGOs.  After project disbursement, IFC will conduct a field audit of the physical site and benefited communities to determine if objectives are being achieved.  Post project audits will also be conducted to measure the success of the facility.


The selected local bank is familiar with IFC’s procedures and environmental policies and has appointed two officers who have completed IFC’s environmental training program for financial intermediaries and intends to train two more officers.  The bank has implemented an effective environmental management system and consulted with IFC environmental staff on a regular basis to ensure that environmental standards are applied diligently.  


Shell, which has operated in Nigeria for 60 years and accounts for approximately half of the country’s daily oil production, has—over the last five years—embarked on an effort to improve its environmental and social practices worldwide, and in particular, in Nigeria.  Shell’s participation in this project is part of its efforts to improve its approach to community issues in the Niger Delta.  Its presence in the facility as a partner is critical for the project’s financial and developmental success.
Niger Delta Contractor Revolving Credit Facility