ABUJA, June 09, 2023 – The World Bank approved today Additional Financing of $449 million in IBRD loan and $301 million IDA* credit to further support the performance-based Power Sector Recovery Operation (PSRO). The Program aims to continue to improve the reliability of electricity supply, achieve financial and fiscal sustainability of Nigerian power sector, as well as enhance its transparency and accountability.
Nigeria has the world’s largest absolute electricity access deficit. Lack of access to the electricity grid affects 45 percent of the population (90 million people), making Nigeria the country with the largest number of people not connected to electricity. As such, Nigeria accounts for 12 percent of the global access deficit. Large disparities exist in access to electricity between urban areas (84 percent) and rural ones (26 percent). The net access deficit has increased by over seven million citizens over the last decade, as the pace of population growth has overtaken the pace of electrification.
Following the parent PSRO which was approved in 2020, the Additional Financing will help Nigeria to generate private capital inflows to the power sector by continuing to address the top constraint to Nigerian businesses: a lack of reliable power supply. The Additional Financing will further support the critical reforms outlined in the Federal Government of Nigeria’s (FGN) Power Sector Recovery Program (PSRP) that target strengthening of the sector’s financial and fiscal sustainability, reduction of the power system’s technical bottlenecks, facilitation of bilateral contracting, institutionalization of least cost planning, and improving of Distribution Companies (DisCos) transparency and governance. The Additional Financing, together with the parent PSRO and Nigeria Distribution Sector Recovery Program (DISREP), another World Bank’s performance-based operation directly supporting Nigeria’s distribution sector, is expected to facilitate more competitive private investment inflows into Nigerian generation and distribution.
“Economic losses from unreliable electricity supply in Nigeria are estimated to be around 7-10 trillion naira per year, which is about 5-7 percent of GDP annually. This trend must be reversed to ensure better economic outcomes for businesses and citizens”, said Shubham Chaudhuri, World Bank Country Director for Nigeria. “We have seen impressive progress with the parent Program: because of the successful implementation of the reforms supported by PSRO, annual sector fiscal subsidies decreased from ₦581 billion ($1.6 billion) in 2019 to ₦166 billion ($410 million) in 2022. DisCos are now paying about 80 percent of their invoices to Nigerian Bulk Electricity Trading company (NBET), compared to 29 percent in 2019, and many of them publish their financial statements online. This Additional Financing will further help to consolidate the gains achieved by attracting the needed private investments to the sector which will help Nigeria to provide stable electricity to its citizens and spur business activities”
The Additional Financing will continue to support improvements in power supply reliability by facilitating the partial (and eventually full) activation and enforcement of all existing Power Purchase Agreements between power generation companies and NBET as this would allow more energy to be brought into the system by utilizing available generation capacity already connected to the grid. In addition, the Additional Financing will help to ensure that private developers will gain more confidence to invest in clean generation and enter bilateral contracts with well-performing DisCos. Moreover, Additional Financing will facilitate better efficiency of transmission network operations that will provide confidence to all sector players that the bilateral contracts are implemented effectively.