Abuja sees the Power Sector Recovery Plan as the essential next step towards overcoming an electricity supply ‘emergency’ and is looking to mobilise billions of dollars more in World Bank support for the dysfunctional sector, writes Batuta Lawal in Lagos, with African Energy staff

Senior Federal Government of Nigeria (FGN) and World Bank Group (WBG) officials have been negotiating an estimated $2.519bn loan to support the Buhari administration’s Power Sector Recovery Plan (PSRP), announced in late February. Taking the lead is the Advisory Power Team, lodged in the office of Vice-President Oluyemi Oluleke Osinbajo, the key player driving policy during President Muhammadu Buhari’s period of protracted illness (AE 340/21). The FGN’s key negotiators are finance minister Kemi Adeosun and power, works and housing minister Babatunde Fashola.

According to government documents seen by African Energy, the WBG has also indicated a willingness to provide an additional $2.7bn in the form of International Finance Corporation (IFC) investment and other support for distribution companies (discos), and Multilateral Investment Guarantee Agency (Miga) support for private investment. This would reinforce the WBG’s already substantial commitment to the Nigerian electricity supply industry, which includes partial risk guarantees (PRGs) essential to underpinning the Nigerian Bulk Electricity Trading (NBET) company and privatised distribution sector, and over $1bn in IFC exposure (AE 334/6).

The PSRP calls on the IFC to provide $1.3bn as direct investment and other support for the power sector to deliver an additional 3.5GW of generation capacity and cover IFC investments in discos. It states that Miga will provide $1.4bn as guarantees on debt and equity for gas and solar independent power projects (IPPs). This will be welcomed by solar IPPs, which have an estimated pipeline of some 800MW of projects that have been looking for support from a range of sources including the African Development Bank (AE 345/9).

WBG approval of the PSRP would unlock a considerable number of deals, project financiers say. The WBG now seems committed to supporting a $490m transmission project, but has also been haggling for months over support for solar IPPs. Sources have told African Energy that these negotiations stalled over the WBG’s insistence that the FGN first introduce agreed reforms before it would unblock PRGs underwriting NBET, and funds for solar and other schemes. A deal on the PSRP, with a clear timetable and process for implementation, would ensure this.

Of the main World Bank loan, $1bn would be budgetary support for NBET, to ensure that generation companies (gencos) and gas suppliers are paid in full for power, “notwithstanding any shortfalls from discos”, according to a government document outlining the facility. Another $500m would be committed to loss reduction by discos, including metering, $364m would be for Transmission Company of Nigeria priority projects, and $305m for guarantees for IPPs provided through the WBG’s conventional lending window, the International Bank for Reconstruction and Development

The remaining $350m is earmarked for rural electrification. The WBG funded comprehensive consultancy on the rural sector under the aegis of the Bureau of Public Enterprises early in the last decade; more recently, the European Union has funded, and German development agency Deutsche Gesellschaft für Internationale Zusammenarbeit overseen, considerable research into rural micro-grids and other distributed solutions – not least in recognition of the grid’s long-term failings. Solar has increased in prominence under the Buhari administration – which is led by a northerner surrounded by a small coterie of senior northern allies, even if much of the policy implementation is driven by southerners. “Solar will be used to solve problems in the north-east,” an official in Abuja said – for example to provide power in university towns.

Critics are asking whether the PSRP will provide a clear direction for access and rural electrification strategy; past projects have generally been undertaken in isolation and on an ad hoc basis. The Rural Electrification Agency is widely seen to need strengthening with a clear mandate and sufficient resources to roll out projects. The PSRP envisages funding for solar mini-grids, solar infrastructure to power schools and hospitals, and a rural electrification fund.

The WBG on 22 April issued a statement confirming it had held a high-level consultation meeting to discuss support for the PSRP, approved by the Federal Executive Council of Nigeria on 22 March. It gave no details of the numbers involved but carried quotes from a range of players including Fashola, Adeosun (“There is need for well-designed derisking in order to attract private investors to the sector”) and House of Representatives Committee on Power chairman Dan Asuquo (“We will make sure our oversight functions focus on the completion of projects and initiatives that support the [PSRP’s] effectiveness”). The WBG “congratulated the government on its commitment to the recovery programme”. Country director for Nigeria Rachid Benmessaoud underlined that the WBG was “committed to supporting the [PSRP’s] implementation… to re-establish financial sustainability in the power sector”.

Patchy performance

The WBG has been involved in the power sector reform programme since its inception, providing technical assistance to the FGN and financial support and policy recommendations to the earlier Privatisation Support Project. Critics say the Washington-based multilateral’s performance has been patchy.

In January, WBG staff analysed the bank’s Nigeria Electricity and Gas Improvement Project launched in July 2010; this was due to close on 31 December 2014, but will now run until end-2017. The WBG committed $198.6m for a project whose objectives were “to: (i) improve the availability and reliability of gas supply to increase power generation in existing public sector power plants; and (ii) improve the power network’s capacity and efficiency to transmit and distribute quality electricity to the consumers”. Its progress towards achievement and overall implementation were both rated “moderately unsatisfactory”, with a “substantial” risk rating.

Privatisation has not had the desired effect of raising capacity or security of supply. The PSRP’s objective is nothing less than the “restoration of financial viability in the electricity market transitional phase post-privatisation”, based on a series of measures supported by the WBG. The FGN sees it as a key instrument to revive the still failing electricity supply industry and underpin the wider Economic Recovery and Growth Plan (2017-20), which is being pushed by Osinbajo and his key allies, including Adeosun, minister of state for oil Emmanuel Kachikwu and Fashola. They have been fighting entrenched interests – some of them within the presidential entourage – to implement credible reforms, recognising that urgent action is needed on issues from constraints on gas output in the Niger Delta (AE 342/13) to the failure to deliver power. According to the PSRP’s executive summary, the “power sector is now in a state of emergency that could cause failure in electricity delivery and of the power sector reform programme itself, which would have severe impact and constrain the administration’s ability to revive economic growth and cause timely exit of recession”.

According to figures presented by the FGN to the WBG to support its loan application, the sector cash deficit reached N800bn ($2.53m) by end-December 2016 – and is calculated to grow by N20bn/month throughout 2017 “if no action is taken”.

Officials told African Energy the Nigerian Electricity Regulatory Commission
(Nerc) and other bodies had sought to tackle this problem in recent months, including raising the numbers of registered customers – from a very low 7m – and “tackling problems bit by bit”, including tariffs and metering. In mid-March, the government showed its intent by approving N700bn for NBET to pay gencos. Further intervention is needed. “The government needs to come in to address short-term problems,” a Nerc official said.

According to the PSRP document, the reform process has “experienced major setbacks over the last 18 months that have resulted in financial distress for sector participants”, reflected in the sector shortfall figures. It identifies four much-discussed problems as key causes of the crisis: the lack of a cost-reflective tariff, low power generation due to gas constraints, poor management and persistently high [aggregate technical, commercial and collection] ATC&C losses due to discos’ inability to invest in loss reduction.

Cautious recovery

In an interview with the Financial Times, published on 12 May, Adeosun looked forward to a return to modest growth of around 1% in 2017, on the back of improved crude prices and government spending on power and rail projects; $6.9bn was earmarked for infrastructure, including major rail and power schemes. This would include borrowing nearly $6bn from the Export-Import Bank of China for the Chinese-led Lagos-Kano railway line upgrade, but major multilateral borrowing is also envisaged. Similar commitments in 2016 were not met, but the government’s reformist core believes it is now strategically better placed to implement projects that will stimulate the economy and start rebuilding Nigeria’s dilapidated infrastructure “sensibly and sustainably”, as Adeosun put it.

Nigeria’s appetite for borrowing was underlined when it floated a $1bn bond in February; the market’s appetite was underlined when the paper was nearly eight times oversubscribed. The desirability of such borrowing was hotly debated, as one analyst put it, because “many believe Nigeria should not get itself into astronomic debt again”. In this context, the PSRP will have to be seen to work to give value to future generations of Nigerian taxpayers, whom the government is keen to see paying more into the exchequer than their predecessors.