Completing Issuance of Nigeria’s Green Bond

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Goddy Egene writes on the efforts so far made by the federal government to issue a N150 billion green bond

The Paris Agreement assented to by President Muhammadu Buhari in May of 2017 has an often over looked provision. In article 2, it outlines the aims of the agreement, one of which is “Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” The Federal Ministry of Environment (FME) under the leadership of the Minister of State, Mallam Ibrahim Jibril has significantly progressed a process that started in September of 2016 with a stakeholders forum that attracted key development partners, capital market operators and public sector institutions. The initiative has resulted in a plan to issue a programme of N150 billion in green bonds over the next few months with a pilot issue of N12.384 billion in the third quarter of 2017 and the balance over the course of the budget year. Collaboration between Ministry of Environment and Finance continues to pull together the institutional partners necessary to achieve what would be Nigeria and Africa’s first sovereign green bond and the world’s third.

Growth of Global Green Bond Market
The global market for green bonds took off in 2007 with an issuance of $600 million by the European Investment Bank (EIB). Since then the market has grown significantly to an annual issuance market last year of $80 billion. Green bonds are like regular bonds, with a slight difference – they can only be used to fund projects that have been identified to have environmental benefits and their contribution to emissions reduction clearly articulated. The global market for green bonds is expected to exceed last year’s amount and China remains a dominant participant in the market. Issuances to date have been largely by corporates and parastatals with the first sovereign issuance in November of last year for Eur750 million by Poland. This was followed by France in January of 2017 which issued Eur7 billion.
However, commitments by signatory nations in the Paris agreement are expected to boost this market as resources are redirected toward development objectives that are sustainable from a climate perspective and contribute to global reduction in emissions.

Ministry of Environment’s Preparation
The Federal Ministry of Environment (FMEM) as custodian of the nation’s commitments under the United Nations Framework Convention on Climate Change (UNFCCC) has provided considerable direction to the process of issuance to ensure that the key elements needed for identification of projects that will meet the green credentials are in place. For instance, in November of 2016 the ministry issued its Green Bond Guidelines drawing from the International Capital Market Association (ICMA) Green Bond Principles (GBP). Working through the Inter-Ministerial Committee on Climate Change (ICCC), it engaged various Federal Government Ministries Departments and Agencies (MDAs) to identify projects with green credentials that will provide the foundation for issuance of the green bond. In agreement with the Minister of Finance (MOF), the projects are required to be included in the budget approved by the National Assembly and assented to by the President.

Inter Agency Participation

The Debt Management Office (DMO) as key issuer of federal government debt is the main liaison with the FME. A green bond account to hold the resources was recently created by the Central Bank of Nigeria (CBN) after approval from the Office of the Accountant General of the Federation (OAGF). Frequent engagement between FME and the Budget Office of the Federation (BOF) within the Ministry of Budget and National Planning (MOBNP), with the June 13, 2017 signing of the budget by the acting President, Professor Yemi Osibanjo, has affirmed the allocations to the identified projects. The projects are: Energising Education Programme (EEP) for N9.5 billion, the Renewable Energy Micro Utility (REMU) for N475 million and the FMEs Afforestation Programme for N2.3 billion, bringing it to a total of N12.3 billion.

The Green Bond Advisory Group

To enable the federal government draw on a wide arrange of expertise in progressing and developing the issuance of the green bond, the FME and FMF established the Green Bond Advisory Group (GBAG). The GBAG is made up of development partners (World Bank, DfID, AfDB, UNEP-CBI, & IFC), capital market stakeholders (Nigeria Stock Exchange, Capital Assets, Chapel Hill Denham & Stanbic IBTC). The GBAG meets frequently with its first meeting in January of 2017 leading to a conference on green bonds in Lagos in February of 2017 at which the Acting President was a key note speaker. The GBAG remains the interface between the development partners and the capital market in ensuring the pilot issuance of the green bond happens in the 3rd quarter of 2017.

Benefits to DMO Debt Strategy
The DMO has disclosed its strategy to be restructuring the FGs debt portfolio to replace short tenured bonds with long tenor and high rates with lower rates. This strategy includes the tapping of the international and local capital markets through various financial products. Sukuks, savings bonds, Diaspora bonds, Euro bonds and soon green bonds to provide options to achieve government’s funding objectives. The right framework for green bonds will provide a credible platform to tap into this fledgling global market. The London Stock Exchange (LSE) has indicated a willingness to participate in the green bond advisory group to provide necessary guidance to the FG to achieve its offshore ambitions.

Benefits to the ERGP
The launch of the federal government’s Economic Recovery & Growth Plan (ERGP) has key objectives that are a catalyst for the issuance of the green bond. In addition to having as its objective the meeting of some of the targets in the UNs sustainable development goals (SDGs), it also has as an objective that is the issuance of a green bond to fund projects that have environmental benefits. Some of the objectives in the ERGP that have to do with identification of revenue flows to government, job growth &creation, population impact and improvement in livelihoods are articulated in the targets of the individual projects to be funded by this bond.

Besides, the issuance of the green bond will begin the process of greening the federal budget and the capital market. It will also demonstrate to the global community Nigeria’s commitment to achieving its targets in the NDCs. For the federal government’s debt portfolio, it expands the universe of capital market products that are being explored in ensuring resources are available to fund the government’s annual budget. On a strategic level it provides a platform for DMO to achieve the objective of extending the tenor of the FG debt portfolio and also reduce interest cost. It would also establish a framework by which sub nationals and corporates can tap into the green bond market.