ABUJA, March 4 (Reuters) – Nigeria will issue a sovereign guarantee to back the bulk of a gas pipeline that is a core part of the government’s energy strategy, Finance Minister Zainab Ahmed said on Wednesday.
The Ajaokuta-Kaduna-Kano natural gas pipeline aims to enable Nigeria to develop gas resources that are often burned at the well due to the focus on crude oil.
The sovereign guarantee will back 85% of the $2.59 billion pipeline cost, funded in turn by a loan facility from Chinese lender Sinosure. The loan has an interest rate of libor plus 3.7% with a 12-year repayment period and a three-year moratorium.
State oil company NNPC will cover the remaining 15% of the project’s cost.
“We have done an extensive review of this project and we are satisfied that the cash flows from the Ajaokuta-Kaduna-Kano gas pipeline will be sufficient to repay the facility,” Ahmed said. “This project is one of the cardinal policies of this administration and it is very strategic to national development.”
The government plans to develop gas-fired power plants along the pipeline, and also to use it to encourage companies to capture and sell gas rather than flaring it, which environmentalists say creates a health hazard and contributes to global warming.
Last month, Nigeria launched new regulations aiming to encourage gas development and announced a $1 million grant from the U.S. government to develop a power plant that would be fed by the pipeline. (Reporting by Felix Onuah, writing by Libby George Editing by Tom Brown)