The Central Bank of Nigeria (CBN) Solar Connection Loan Facility Framework

The Central Bank of Nigeria (CBN) Solar Connection Loan Facility Framework

This article will be looking at the Central Bank of Nigeria (CBN) Framework on the Federal Government-backed Solar Connection Facility, which was released in September 2020 and is an initiative aimed at expanding energy access to 25 Million individuals (or 5 Million new connections) through the provision of Solar Home Systems or connection to a mini-grid, increasing local content in the off-grid solar value chain and facilitating the growth of the local manufacturing industry & incentivizing the creation of 250,000 new jobs in the energy sector. 

We will look at the provisions of this credit facility framework in detail.

What is the overall objective of this CBN & Federal Government initiative?

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The Solar Connection Loan Facility Framework was created as part of its overall Economic Sustainability Plan (ESP) to support the economic recovery in response to the economic losses brought about by Covid-19 and the understanding of the Federal Government of the indispensability of power in economic development at any level.

What is the categorization of planned participants in the Solar Connection Loan Facility?

The CBN Framework divides participants in the loan scheme into :-

a). Upstream Participants

These are companies engaged in :-

  1. The manufacturing of solar components and balance of systems.
  1. The establishment/expansion/upgrade of solar manufacturing facilities.
  1. The assembly of solar components & balance of systems.
  1. The repair and maintenance of Solar Home Systems (SHS). 
  1. Any other off-grid solar value chain activity as may be prescribed by the CBN.

b). Downstream Participants

These are companies involved in :-

  1. The distribution and after sales support of Solar Home Systems (SHS).
  1. Mini-grid project development activities including site identification and assessment, design & planning as well as customer acquisition.
  1. Engineering, procurement and/or construction or mini-grids.
  1. Any other retail-based off-grid solar value chain activity as may be prescribed by the CBN.

What are the prohibited activities for these 2 participant categories?

Upstream Participants

– The facility shall not be used to finance the importation of fully assembled solar components and balances of systems.

Downstream Participants

– The sale or deployment of 100% imported Solar Home Systems (SHS).

– The deployment of mini-grid projects with 100% imported components and balance of systems with no proof of existing local content or local integration plans. 

What are the loans available for each participant category and their terms?

Upstream Participants

Project Financing Loans

  1. Loan amount :- Not more than 70% of the project total cost.
  1. Tenor :- A maximum 10-year tenor not exceeding the 31st of December,2030.
  1. Moratorium :- Depending on the type of project but shall not exceed 2 years or the construction/completion period, whichever is shorter. An additional 12-month period may be added to address completion delay risks.
  1. Interest Rate :- Not more than 9% per annum, but at first it was 5% per annum up to the 28th of February,2021.

Working Capital Loans

Tenor :- 1 year tenor with a maximum tenor of 3 years.

Downstream Participants

Term Loans (Expansion, Mini-grid Projects)

  1. Amount :- 70% of project cost.
  1. Tenor :- Up to 7 years.
  1. Moratorium ;- Up to 2 years.

Working Capital

  1. Amount :- To be determined as a percentage of the average of 3-year projected cash flows subject to a 500 Million Naira limit.
  1. Tenor :- 12 months subject to a 3 year maximum tenor.
  1. Interest Rate :- 10% .

Distribution/Retail Facility

  1. Amount :- Average amount of 3-year projected cash flows subject to a 500 Million Naira limit.
  1. Tenor :- Up to 5 years. 
  1. Interest :- 10% 
  1. Moratorium :- 6 months

CBN funding for SHS Retailers & Distributors under the proposed CBN-electricity market stabilization model .

What are the general requirements for securing these loan facilities?

Upstream Participants

  1. An application to a Primary Financial Institution (PFI).
  1. CAC (Corporate Affairs Commission) documentation including a certificate of incorporation and a copy of the applicant company’s Memorandum/articles of Association (MEMART).
  1. A business plan (with 3 year projections)
  1. An off-taker agreement with companies accredited by the Nigerian Electrification Project(NEP). 

Downstream Participants

  1. A NEP pre-qualification check. 
  1. An application to a PFI.
  1. A World Bank “No Objection”(for mini-grid developers).
  1. Site specific evaluation and approval.
  1. CAC Documentation.
  1. A 3-year actual cash flow statement/1-year for new companies.
  1. A business plan.
  1. A list of accounts domiciled with PFIs. 

For CBN SHS Retailer Funding :-

  1. Written agreements with the CBN and other stakeholders.
  1. A disclosure of all revenue accounts with banks and OFIs (Other Financial Institutions) to the CBN.
  1. A disclosure of all 3rd party revenue collection agents to the CBN.
  1. The appointment of a deposit money bank as a principal collection account bank.
  1. A proven arrangement to ensure that all revenues collected in a month are swept into a single account with the principal collection bank which must be CBN licensed.

Which Financial Institutions are deemed to be Participating Financial Institutions (PFIs) under this framework?

All banks in Nigeria licensed by the CBN are categorized as PFIs under the CBN Framework.

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