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AfDB Approves $187.3m for Power Sector Investment

The African Development Bank Group (AfDB) has approved a number of financial packages to help advance Nigeria’s reform of her electricity industry. The board of the pan-African bank recently approved an African Development Fund (ADF) Partial Risk Guarantee (PRG) programme worth $184.2 million as well as an ADF loan of $3.1 million to help grow capacity in the sector. The financial assistance is geared to support the country’s power sector privatisation programme. A statement, which was obtained from the AfDB in Abuja noted that the PRG programme was aimed at increasing Nigeria’s electricity generation by catalysing private sector investment and commercial financing in the power sector through the provision of PRGs. As expected, the PRGs will mitigate the risk of the Nigeria Bulk Electricity Trading Plc (NBET) as it fulfills its contractual obligations under its power purchase agreements with eligible independent power producers (IPPs). NBET is an entity of the federal government established to purchase electricity from IPPs under contractual terms contained in signed power purchase agreements. Its responsibilities are amongst others, to increase the comfort level of private sector financiers and commercial lenders investing in the Nigerian power sector privatisation programme. The statement added that the Director of the AfDB’s Energy, Environment and Climate Change Department, Alex Rugamba had explained the potential impact of the programme following the board’s decision. “An effective and steady power supply is critical to the sustainability of Nigeria’s development path. The board’s decision today will allow the AfDB to support the Nigerian government’s efforts to reform the power sector and position the country for sustainable and inclusive growth,” Rugamba said. The AFDB also explained that over the long term, the Nigerian PRG programme is expected to lead to increased productivity, economic activity and growth, and reduced poverty, adding that in the short to medium term, the project will yield an increase in the maximum electricity supply and consumption per capita. AfDB further stated that government statistics indicate that power outages cost Nigeria about three per cent of its Gross Domestic Product (GDP) annually, thus it is anticipated that the IPPs eligible for coverage under the programme could generate an additional 1,380 megawatts (MW) of power by 2016 and thereby contributing to increasing the population’s access to more reliable and affordable electricity from its current 41 per cent currently to 50 per cent by 2016. Nigeria, in its development objective to rank amongst the top 20 economies of the world by the year 2020, targets an ambitious 40,000MW of electricity generation which represents more than half of the current installed capacity on the African continent. The ADF PRG is a political risk mitigation instrument that covers private lenders and investors against the risk of the government or government-owned entity failing to meet its contractual obligations to a project. Since 2004, the AfDB has made ADF PRGs available to catalyse private investment in middle-income countries.

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