The Board of Directors of the African Development Bank Group (AfDB) on Wednesday approved an African Development Fund (ADF) Partial Risk Guarantee (PRG) programme of $184.2 million and an ADF loan of $3.1 million for capacity building to support the Nigerian power sector privatisation programme.
The bank said the PRG programme in Nigeria aims to increase the country’s electricity generation by catalysing private sector investment and commercial financing in the power sector through the provision of PRGs. The PRGs will mitigate the risk of the Nigeria Bulk Electricity Trading Plc (NBET), a Federal Government of Nigeria entity established to purchase electricity from independent power producers (IPPs), not fulfilling its contractual obligations under its power purchase agreements with eligible IPPs. This in turn will increase the comfort level of private sector financiers and commercial lenders investing in the Nigerian power sector privatisation programme.
Following the board’s decision, the Director of AfDB’s Energy, Environment and Climate Change Department, Alex Rugamba, explained the potential impact of the programme: “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.”
Over the long term, the Nigerian PRG programme is expected to lead to increased productivity, economic activity and growth, and reduced poverty. In the short to medium term, the project will yield an increase in the maximum electricity supply and consumption per capita.
According to government statistics, power outages cost Nigeria about three per cent of her GDP annually. It is anticipated that the IPPs eligible for coverage under the programme could generate an additional 1,380 MW of power by 2016, thereby contributing to increasing the population’s access to more reliable and affordable electricity (from 41 per cent currently to 50 per cent by 2016).
Nigeria, in its development objective to rank among the top 20 economies of the world by the year 2020, targets an ambitious 40,000 MW of electricity generation, which represents more than half of the current installed capacity on the African continent. With a population surpassing 160 million, its current maximum electricity generation capacity – approximately 5,500 MW – is inadequate to meet demand estimated at 10,000 MW. To meet the generation targets set for 2020, significant private sector investment is required in the supply chain, including generation, gas to power infrastructure and distribution networks.
This is the second ADF PRG issued by the bank in less than two months after the one in support of the Lake Turkana Wind Project in Kenya. The AfDB’s innovative approach for crowding-in private financing for infrastructure investments with the guarantees will have a catalytic and replication effect in Nigeria and more broadly in Africa.
Source: The Sun