The African Development Bank (AfDB) has approved packages of more than $187 million for the Nigerian Power Sector. These include 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.
As Nigeria continues with the rapid privatisation of the power sector, the AfDB is providing assistance to increase generation capacity by catalysing private sector investment and commercial financing in the power sector through the provision of PRGs. The PRG will be used to mitigate the risk of the Nigerian Bulk Electricity Trader (NBET), which will act as a guarantor to contractual obligations for power purchase agreements with 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.
Director of the AfDB’s Energy, Environment and Climate Change Department, Alex Rugamba said “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.”
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.
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.