Nigeria seeks 5.2bn from World Bank to rehabilitate stifled power industry


Nigeria is reportedly seeking $5.2bn investment from the World Bank to aid revovery in promote growth in its power industry.

According to Bloomberg, Nigeria is looking to “expand electricity generation and help the economy recover from its first contraction in 25 years.”

The country is looking to raise a further $2.5 billion to help improve the distribution of power, expand transmission-capacity and increase access to electricity in rural areas, said Power, Works and Housing Minister Babatunde Fashola.

The International Finance Corporation, the World Bank’s private-sector lending arm may invest $1.3 billion in power projects and electricity distribution companies, reports Bloomberg.

The World Bank’s political-risk insurer, the Multilateral Investment Guarantee Agency, may also provide equity and debt of $1.4 billion for gas and solar power programmes.

Fashola told Bloomberg,“Disbursements with the World Bank are being worked out to start from around June, July this year,” adding that the government would like to start seeing results as early as next year.

The Power, Works and Housing Minister was appointed last year, and tasked to “boost” the power industry, which has been cited one of the largest “impediments to growth in the country.”

The Nigerian economy is said to have shrunk by 1.5% last year, the first full-year contraction since 1991 because of a fall in oil prices and production and dollar shortages.

The lack of generation has increased production costs for many businesses who are running diesel-run generators.

Liquidity challenges and tariffs structures

Also plaguing Nigeria’s energy generation and distribution companies is cash-flow difficulties, partly due to foreign-exchange losses, outages due to technical faults and the theft of electricity by some users. In 2016, power distributors paid only 27 percent of the 331 billion naira ($1 billion) that generating companies invoiced, according to the National Bureau of Statistics.

Nigerian president Muhammadu Buhari introduced an economic plan last month that proposes cost-reflective electricity tariffs, partly to attract investment in the sector and help the economy recover.  Fashola added that the Nigerian Electricity Regulatory Commission should simplify the price-setting formula and work with the central bank to protect the tariff from exchange-rate fluctuations.

Bloomberg explains, “Nigeria’s currency lost about a third of its value against the greenback after the central bank removed a 197-199 naira to dollar peg in June.

“The regulator continued to intervene in the market to keep the naira at about 315 per dollar, which helped to create a thriving black market where foreign currency cost about 30% more. Electricity tariffs were fixed before the naira was allowed to devalue.”

“I don’t think we will have any successful tariff regime where you have a very fluid exchange rate,” Fashola said. “[Depreciation of the naira] wiped out any or most of the gains that the new tariff should have conferred.”