Nigeria has secured a $500 million loan from the World Bank to boost its electricity sector, specifically targeting power distribution. This development comes after the recent hike in tariffs for top consumers in Africa’s most populous nation last month.
The Bureau of Public Enterprise (BPE), Nigeria’s privatisation agency, announced on Thursday that the loan was approved by the World Bank in 2021. The loan was included in the government’s borrowing plan this month after achieving certain milestones.
The concessionary loan aims to improve the financial and technical performance of distribution companies, which have struggled to increase capacity over a decade after Nigeria privatized its electricity sector.
In 2012, Nigeria privatized its electricity sector, which was seen as a major hurdle to growth. However, funding constraints, gas shortages, and challenges with the national grid have limited improvements following the sale.
The country’s electricity sector faces numerous problems, including a failing grid, gas shortages, high debt, and vandalism. Nigeria has 12,500 megawatts of installed capacity but produces only about a quarter of that, leaving many Nigerians reliant on expensive diesel-powered generators.
State-controlled power tariffs are too low to attract new investors and allow distribution firms to recoup costs and pay generating companies, resulting in ballooning debt.
Last month, the electricity regulator increased tariffs for better-off consumers who use the most power in Nigeria. This move aims to wean the economy off subsidies and ease pressure on public finances.
The World Bank has previously recommended subsidy cuts to help Nigeria improve the state of its public finances. The loan is expected to support the government’s efforts to address the challenges in the electricity sector.
The $500 million loan is a significant step towards improving Nigeria’s electricity distribution and generation capacity. The loan’s concessionary terms will help reduce the financial burden on the government and distribution companies.
The loan is expected to contribute to the development of Nigeria’s electricity sector, improving the lives of millions of Nigerians who rely on diesel generators for power.
