NIGERIA SOVEREIGN GREEN BONDS

 

Background

Nigeria became the first country on the African continent and the fourth globally to issue a security that raises funds for environmental projects after the launch of its first and second tranches of a N150bn Sovereign Green Bond programme. The Nigeria Sovereign Green Bond is a financing mechanism to facilitate and assist Nigeria in meeting its Nationally Determined Contribution (NDC) target. It helps the country pursue a low carbon pathway for socio-economic development in line with the Economic Recovery Growth Plan (ERGP). The sovereign green bond presents Nigeria with an opportunity to demonstrate national leadership in the green financing agenda while giving exposure to a new investor base and solidifying the country’s commitment to complying with the Paris Climate Change Agreement. The implementation of the green bond has provided the country the opportunity to increase the profile of Green projects in Nigeria and provide a platform for the Government to pull local and international funds to service national climate action.

Institutional Arrangements

As part of the Green Bond process the FGN had set up a few administrative structures to facilitate the issuance of the first tranche. It set up a Green Bond Advisory Group (GBAG) made up of public and private sector institutions to provide high level oversight to the Green Bond process. The Group meets every quarter to discuss progress of the issuance process.

Composition of the Green Bond Advisory Group:

Development Partners: World Bank Group, IFC, AfDB, UNEP-CBI

Capital Market Operators: Chapel Hill Denham, Capital Assets, Stanbic IBTC, NSE, Rand Merchant Bank

Regulators: PENCOM, Securities Exchange Commission, NSE

 

Through the World Bank Support, the Green Bond Secretariat was established and domiciled in the Department of Climate Change. Hence, the green bond activities are continually supported under the Climate Change Component of the NEWMAP/World Bank Support.

 

The Federal Ministry of Environment (FMEnv) and the Federal Ministry of Finance (FMF), through the Debt Management Office (DMO), agreed for inclusion of the Green Bond in the National Borrowing Plan

 

Use of Proceeds

Projects funded from the proceeds of the bond provided clear and quantifiable environmental benefits. They also possess linkages with key targets in the Nationally Determined Contributions (NDCs) which reflect Nigeria’s commitment to the Conference of Parties of the United Nations Framework Convention on Climate Change

Green Bond Eligible Projects: Evaluation and Selection

Eligible Projects were identified from the FG Appropriation. Selected projects met the Green Bond Principles definitions of Climate related activities. Only projects in annual national budget signed by the President are eligible for funding.

Through the long established Inter-ministerial Committee on Climate Change (ICCC) qualifying projects with climate credentials are identified in the budget. To further interrogate the projects green credentials, the Green Bond Program Technical Advisory Team (GBPTAT) is set up under the World Bank funding support to the Green Bond process. The team made up of sector specialists and theme specialists reviews the selected projects in line with the technical, financial, climate, economic and social benefits. The team also ensured that the projects were included in the appropriation act which is the basis that makes them eligible for funding by Federal Government resources in line with guidelines of a sovereign green bond transaction process.

External Review – Second Opinion, Verifying, Certifying, Rating

For a green bond to attain a level of investor legitimacy, there is market consensus that the sovereign must obtain a pre-issuance external review of the green bond’s compliance with Green Bond Principles, or an equivalent framework. Consistent with the Green Bond principles, a second opinion was sought for Nigeria’s issuance of its green bonds. Two institutions a Second Party Opinion to the First Green Bond; Moody’s (through its Green Bond Assessment) and DNVGL (in applying the Climate Bonds Standards). The review process involved consultations with the sector and theme specialists in the Program Technical Advisory Team. Moody’s provided an assessment of GB1 (Excellent), while DNGVL provided a verification opinion that resulted in CBI issuing a certification to the Green Bond indicating it meets the Climate Bonds Standard.

Reporting

Consistent with the Green Bond guidelines, progress reports are expected to be prepared on the status of the projects. Supervision missions are conducted to verify the status of the projects and provide background input to the progress report. Regular Monitoring & Evaluation Visits are conducted to projects sites during and post implementation.

  • Stakeholder Engagement

There has been series of Stakeholders Workshops and capacity building programmes with members of the Interministerial Committee on Climate Change /Retreat- aimed at deepening interactions among relevant stakeholders, further discussions on lesson learnt and review of the process as a whole. These includes interface with the Interministerial Committee on Climate Change (relevant MDAs) on the identification, selection and validation of pipeline of projects for funding under the proceeds of the green bond issuances, capacity building programmes for the Green Bond Secretariats, Local retreats for desk officers of the technical working group of the ICCC.

8.1         The First Issuance

In the fiscal year 2017 (FY17), the Federal Government of Nigeria (FGN) issued its first Sovereign Green Bond to the amount of N10.69Billion ($29m).

Volume N10.69Billion
Number of Projects 3
Tenor of Bond 5year

 

  1. Energizing Education Programme
  • A Rural Electrification Programme that was implemented in phases by the Rural Electrification Agency, developing off grid independent Power Plant-type projects for the generation and provision of adequate power supply to 37 Federal Universities and 7 Teaching Hospitals across the country.
  • The Phase 1 Solar Project Sites funded under the 2017 Green Bond is in 7 seven universities across the country with a cumulative of 12.5MW capacity.
  • The project is developed to strengthen the electricity distribution within the selected universities.
  • Over 4580 jobs were created from the construction, operation and maintenance of the power plants.

 

  1. Renewable Energy Micro Utility Programme
  • The Renewable Energy Micro Utility (REMU) project was implemented by the Federal Ministry of Power, Works and Housing. The implementation of REMU is to showcase the technical feasibility and commercially off grid connected mini-grids and test the application of mini-grid regulation approved by Nigeria Electricity Regulatory Commission (NERC) as well as contribute to achieving Nigeria’s climate change mitigation measures on its National Determined Contribution (NDC) in accordance with the objectives of the Paris Agreement and SDGs goal No 7.
  • The 60KW Torankawa grid connected mini grid was implemented with the proceeds of the 2017 issuance.
  • 15 direct jobs were created from the programme via the installation, maintenance and replacement of solar panels.
  • The construction of the project under the 2017 Green Bond has been completed, commissioned and is supplying reliable power supply to 85 household and 14 small businesses covering 1,750 people.

 

  • National Afforestation Programme

The objective of the National Afforestation Programme of the Federal Ministry of Environment (FME) is to increase Nigeria’s existing forest cover through establishment of forest plantation of environmental and economic tree species and enhancing livelihoods of the urban and rural poor. The Afforestation Programme is a key component of the in Nigeria’s strategic framework towards achieving Nigeria’s Nationally Determined Contributions (NDCs) committed under the Paris Agreement. It also falls under the environmental priorities contained in programme 47 of the ERGP which point to the need for Nigeria to establish a forest plantation in each State, combat drought, desertification and land degradation, and enhance Eco tourism by rehabilitating forest reserves and national parks. The Afforestation program was designed to have the projects aligned with some pre-defined criteria including Strategic approach, the coverage and impact of the program, contribution to the ecosystem and expansion/exit options.

 

The Afforestation programme was implemented by 4 MDAS (Forestry Research Institute of Nigeria, National Agency of Great Green Wall, National Park Service and the Drought & Desertification Amelioration Department of the Federal Ministry of Environment).

This programme increased forest coverage through the plantation of seedlings to cover 841 hectares of land. Forest/economic trees such as Neem, Khaya, Acacia Senegal, Prosopis, Eucalyptus. Jatropha, Guava, Cashew, Moringa, Mango, Citrus, Lemon, Citrus sinensis, and Pawpaw seedlings were inclusive.

Second Issuance

The FGN issued its second series of the Sovereign Green Bonds to the tune of N15billion which was done at the end of the second quarter of 2019 (on June 13, 2019), the bond was oversubscribed and the proceeds from the issuance is funding twenty-three (23) eligible projects cutting across 5 (five) NDC sectors from the 2018 FGN’s Appropriation Budget selected and approved through the Inter-ministerial Committee on Climate Change (ICCC). The projects are also implemented by various MDAs, they are the:

 

  • Afforestation Programme – under the Federal Ministry of Environment (and its relevant Agencies) .
  • Renewable Energy Sector – under the Federal Ministry of Power.
  • Transport sector – under Ministry of Transport & The Federal Capital Territory Administration.
  • Agriculture sector – under Ministry of Agriculture.
  • Water sector – under Ministry of Water Resources.

 

List of Projects funded under the Second Issuance of the Green Bonds (Ongoing)

8.3 Status of Sectors and Impact on Green Bond Funding
    2017  t/Co2 2018  t/Co2 Total  t/Co2  Estimated Job Creation NDC Themes
Power 29,969 9,311 39,280 1,752 Mitigation
Afforestation 3,535 1,403 4,938 8,579 Adaptation
Water 515 515 18,445 Adaptation and Mitigation
 Agriculture 1,680 1,680 4,200 Adaptation
Transport   28,978.80 28,978.80 12,225 Mitigation
  33,504 41,888 75,392 45,201  

 

 

  • Ongoing Activities

 

  1. Monitoring and Evaluation of projects under the 2nd Issuance
  2. Commencement of the Issuance of the Third Series of the Green Bond

The Sixth Meeting of the Green Bond Advisory Group held in February 2020 in preparations for the third Issuance of the Green Bonds.

Capacity Building

A robust and vibrant green bond issuance and management requires constant improvement and development of knowledge and skills by stakeholders and key players within the Green Bond process, this is evident because of the growing dynamism of the green bond and climate finance by extension. To ensure that the human capital needs in this sector are met, the following capacity enhancement exercises were embarked upon:

FMDQ Focused Training Session for Stakeholders In A Sovereign Green Bond Issuance Process.

Financial Market Dealers Quotation (FMDQ) OTC Securities in collaboration with the Climate Bond Initiative (CBI) and Financial Sector Deepening Africa (FSD) organize a roundtable session whose aim was to deepen knowledge on the Green Bond Issuance process and the understanding of the expected roles of the various stakeholders for the development of robust and vibrant Green Bond Market. The session took cognizance of the appetite in the capital market from the second issuance, as its records oversubscription.

3-Day Green Bond Course: Sustainable Financing of Our Future in Africa.

The Natural Eco Capital, a sustainability consulting firm and a member of Natural Capital Coalition with a pedigree in Circular Economy Club and Clean Technology Centre & Network in Collaboration with United Nations University Institute for Natural Resources in Africa is a well-established training organization that provides focus trainings in the area of Climate Finance, the Green Bond and other Climate Change related activities.

 

Nigeria Stock Exchange (NSE) Green Bonds and Climate Financing Masterclass.

After the second successful Green Bond issuance by Federal Government of Nigeria and the pace at which the Green Bond market and other veritable sources of sustainable finance is growing, the Academy saw the need to further develop and strengthen the capacity of key sector actors in a bid to further understand the dynamic of Climate Finance as well growing a network of experts in sustainable/Green financing. Participation at the training included officers of the Green Bond Secretariat (GBS), Department of Climate Change (DCC) and the Nigeria Erosion and Watershed Management Project (NEWMAP).

 

Workshop on assessing GHG emissions and evaluating their significance in projects funded from the proceeds of the green bond issuances.

The reporting requirement which is the integral part of the Green bond process as it address the project description, the budget as well as the GHG emissions saved. The Forest and Carbon Emissions Expert was tasked to provide technical and advisory support to the Green Bonds project review through the development of the emission reduction criteria as stated in his Terms of Reference (ToR). The training demonstrated how to calculate and ascertain the amount of emission reduction towards achieving the nation’s Nationally Determined Contributions (NDC) targets in the identified projects of the pipeline to be funded from the proceeds of each issuance. Participation at the training sessions had in attendance the Green Bond Secretariat and the Green Bond Team of the Department of Climate Change, GHG officers of the Department and NEWMAP respectively.