What World Bank’s $500m loan means for Nigeria’s power sector

Improving the reliability of electricity supply, attracting private capital, and achieving fiscal sustainability are some of the fundamental impacts the World Bank’s $500 million loan is expected to have on Nigeria’s power sector, energy experts say.

Nigeria’s decrepit power sector has hobbled the growth of Africa’s largest economy for decades. However, with improved transparency, implementation of critical reforms on tariff, and the clean-up of historical tariff shortfall debt on the electricity distribution companies’ balance sheets, the power sector could soon be back in the spotlight for new investments, raising hope of improved power supply for consumers.

The World Bank’s release of the first tranche of $500 million loan is a vote of confidence and capable of attracting badly needed investment, especially in the transmission and distribution networks, industry operators say.

“With the end of estimated billing and introduction of market reflective tariffs, there is a huge money-spinner in the distribution network for any prospective investor,” said Kunle Olubiyo, head of energy, East and West Africa, Clarion Energy.

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While there are still concerns about the inadequacy of transmission and distribution infrastructure, there is a consensus these must improve if electricity will be available to many households in a steady manner.

“Previously, at least 50 percent of distributed power was consumed free-of-charge, but that is no longer the case,” Olubiyo said. “There is huge potential in Nigeria’s power network which is why the World Bank is providing support for distribution and metering infrastructure.”

Ade Yesufu, a market research specialist at Greenville Energy said electricity meter financing would provide more revenue for market operators and this will not only help them meet up payment obligations but also increase liquidity in the sector.

Nigeria has the capacity to produce 13,000MW of power, compared with more than 50,000MW for South Africa, which has a similar-size economy and a quarter of the population. But Nigeria’s ageing grid delivers only about 5,000MW of power to its 200 million citizens — roughly what the capital city of Scotland provides for 500,000 residents.

Ahmed Zakari, the special adviser on infrastructure to President Muhammadu Buhari, said Nigeria’s power sector needs accelerated funding which the government alone cannot afford to bridge the distribution deficit gap across the country.

“I think the assessed gap is about $10 billion and we’ve come up with multiple schemes to rapidly infuse funding into that segment of the value chain,” Zakari said in a television interview on Tuesday.

The World Bank’s $ 500 million loan is part of a $750 million package planned for Nigeria’s electricity sector, under the Power Sector Recovery Program (PSRO) aimed at increasing the reliability of power supply.

The money will help distribution companies “make necessary investments to rehabilitate networks, install electric meters for more accurate customer billing and to improve quality of service for those already connected to the grid,” the Washington-based lender said in an emailed statement.

To qualify for funds, private distribution companies must meet various criteria including connection targets, financial management, and network expansion, the lender said.

“The lack of reliable power has stifled economic activity and private investment and job creation, which is ultimately needed to lift 100 million Nigerians out of poverty,” Shubham Chaudhuri, World Bank Country Director for Nigeria said in a statement.

According to the World Bank, 85 million Nigerians do not have access to grid electricity, making the West African nation the country with the largest energy access deficit globally.