By FESTUS OKOROMADU, Abuja with agency report
The federal government has confirmed that it is seeking the sum of $5.2 billion from the World Bank to expand electricity generation. The move is expected to help the economy recover from its first contraction in 25 years.
The Minister of Power, Works and Housing Mr. Babatunde Fashola who disclosed this to Bloomberg, said the world Bank’s private-sector lending arm, the International Finance Corporation (IFC), is expected to invest about $1.3 billion in power projects and electricity distribution companies. While the bank’s political-risk insurer, the Multilateral Investment Guarantee Agency (MIGA) will provide $1.4 billion in the form of equity and debt for gas and solar power programs.
Coupled with the $2.5 billion loan the country is seeking from the lender to help improve the distribution of power, expand transmission-capacity as well as increase access to electricity in rural areas, the sector will end-up with a total investment of $5.2 billion.
The report further confirm a revelation from a close source to the power industry who earlier told LEADERSHIP that the federal government is currently sourcing for $7.6 billion from the global lender who had already given the government some stringent conditions including inauguration of all the boards of parastatals in the power sector which includes NETCO, NERC, BULK Traders, BPE as well as the implementation of the power plan
Fashola, who spoke with the agency in Abuja, stated that the disbursement of the fund will commence from June. “Disbursements with the World Bank are being worked out to start from around June, July this year,” he said.
The World Bank had in statement last month expressed interest in supporting the government’s power-sector recovery plan, days after President Mohammadu Buhari introduced an economic plan which proposes cost-reflective electricity tariffs.
The new plan is believed to have been initiated by the World Bank partly to attract investments in the sector and help the economy recover. According to the bank’s statement, Nigeria’s power sector is characterized by poor service and lack of liquidity which causes macroeconomic imbalances and a binding constraint to economic recovery.
Currently, Nigeria produces about 4,000 megawatts of power compared with an average peak generation of about 35,000 megawatts in South Africa, with a population that’s less than a third of the size of Nigeria’s 180 million people.
This is even as the World Bank noted that lack of power supply increases production costs for many businesses forced to provide their own electricity, mostly using diesel-run generators.
The Nigerian economy shrank 1.5 percent last year, the first full-year contraction since 1991 because of a fall in oil prices and production and dollar shortages. Meanwhile the International Monetary Fund (IMF) has reported that gross domestic product (GDP) could expand 0.8 percent this year and 1.9 percent in 2018, hence the need to improve power generation.
The fresh funds are coming on the heels of cash-flow difficulties facing power generation and distribution companies in the country, due partly to foreign-exchange losses, outages due to technical faults and the theft of electricity by some users.
According to the National Bureau of Statistics (NBS) reported that in 2016, power distribution companies (Discos) paid only 27 percent of the N331 billion ($1 billion) that generating companies invoiced.
Fashola who emphasized the need for cost-effective tariff encouraged Discos to fix meters for measuring what they receive from generators and what they sell to users. 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, Fashola told Bloomberg.
“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.”
The national grid can currently only transmit about 6,200 megawatts, with projects in the pipeline to expand that capacity to 10,000 megawatts by 2019, Fashola said.