The World Bank Board of Directors on Tuesday 23rd June, approved a loan of $750 million for Power Sector Recovery Operation (PSRO) for Nigeria. According to a press release by the multilateral lender, the credit is to improve the reliability of electricity supply, achieve financial and fiscal sustainability, and enhance accountability in the power sector in the country.
The loan is being made available through the World Bank’s International Development Association (IDA). The IDA was established in 1960, it helps the world’s poorest countries by providing grants and low to zero-interest loans for projects and programs that boost economic growth, reduce poverty, and improve poor people’s lives.
The problem of inadequate or outright unavailability of electricity in Nigeria has been and continue to be one of the biggest obstacles to doing business in the country. According to a World Bank report in 2017, approximately 80 million people lacked access to grid electricity. At the time of the report, Nigeria has the largest access deficit in Sub-Saharan Africa and the second largest in the world, after India.
The national electrification rate was 55 percent, and the rural electrification rate was only 39 percent. To achieve universal access to electricity by 2030, Nigeria would need to connect between 500,000 to 800,000 households per year.
The PSRO is expected to provide a results-based financing to support the implementation of the Government’s Power Sector Recovery Program (PSRP).
The Power Sector Recovery Performance (PSRP) of the Federal Government of Nigeria, was approved by the Federal Executive Council in March 2017. The PSRP included the following measures;
- To improve the financial viability of power sector operators.
- Increase power supply and strengthen sector governance and contract enforcement.
- De-risking the sector for private investment and putting it on a path to long-term sustainability report.
PSRP, another program to address the abysmal electricity generation and distribution in the country, as conceived in 2017 was to be financed with $6.33 billion, with $1.000 billion coming from the World Bank’s IDA, $3.03 billion from the borrower, and $2.30 billion from others (CBN Payment Assurance Facility).
Getting access to electricity ranks as one of the major constraints for the private sector. Hence, improving power sector performance, particularly in the non-oil sectors of manufacturing and services, will be central to unlocking economic growth post COVID-19.
Figure 1: The Most Important Obstacles to Doing Business in Nigeria, 201 (percentage of respondent firms stating the issue is the biggest obstacle)
Speaking about the credit, Shubaham Chaudhuri, World Bank Country Director for Nigeria said, “The lack of reliable power has stifled economic activity and private investment and job creation, which is ultimately what is needed to lift 100 million Nigerians out of poverty. The objective of this operation is to help turn around the power sector and set it on a fiscally sustainable path. This is particularly urgent at a time when the government needs all the fiscal resources it can marshal to help protect lives and livelihoods amidst the COVID-19 pandemic.”
The PSRO will ensure that 4,500 MWh/hour of electricity is supplied to the distribution grid by 2022 by strengthening the regulatory, policy and financing framework. It will also enhance the accountability and financial viability of the sector, helping the sector create a track record of sustainable operation necessary for unlocking much needed private investments in the future.
Nigeria’s external debt stock as at December 31, 2019 was $27.67 billion, with the World Bank Group accounting for $10.10 billion (IDA: $9.69 billion, and IBRD: $0.40 billion) representing 36.5% of total external debt.
The loan is for a period of 30 years, with a 5 years grace period. The rate at which the loan was approved was not mentioned in the World Bank reports seen by Investogist.