Partial risk guarantee program in support of the power sector
- Reference: P-NG-FA0-006
- Approval date: 18/12/2013
- Start date: 18/12/2014
- Appraisal Date: 01/06/2013
- Status: ApprovedAPVD
- Implementing Agency: FEDERAL MINISTRY OF FINANCE
- Location: Nigeria
The ADF PRGs will protect the private investors and/or lenders against the risk of NBET not fulfilling its contractual obligations under the PPAs to be concluded with each nominated IPP.
A revolving standby letter of credit (L/C) for the account of NBET will be issued by a commercial bank (L/C Issuing Bank) to each IPP as payment security for payment obligations of NBET under the PPA. Each PRG will backstop the debt obligation of NBET to the L/C Issuing Bank for any amount drawn by an IPP under the L/C as a result of breach by NBET of its obligations to reimburse the L/C Issuing Bank within a specified timeframe to be discussed and agreed with each L/C Issuing Bank.
To date, NBET has nominated four competitively awarded IPPs to be supported under the proposed Program: two Greenfield gas fired IPPs, namely Okija (495 MW) and Ikot Abasi (250 MW), and two recently privatized brownfield IPPs, namely Transcorp Ughelli (972 MW - gas fired) and Shiroro Power (600 MW - hydropower).
Once Board approval is obtained for the Program, each project will be subject to the Bank Group's due diligence, appraisal and safeguards requirements. A lapse-of-time basis Board approval will then be sought for each one of them before financial close. .
The Project aims at increasing electricity production and thereby relieving the population of polluting diesel powered generators which currently cost the country USD 13 billion a year. The project will boost power supply to the national grid in line with the Federal Republic of Nigeria's PRESIDENT vision of providing stable power supply by 2015. This Project is evolving within an environment of reforms in the power sector and the Bank's PRG will mitigate associated political risks.
This Project is well aligned with the Bank's Energy Strategy, Climate Change Action Plan, and the recently approved CSP for Nigeria (2013-2017) that proposes to support the delivery of key infrastructure including power and IPPs under Pillar II. Additionally this Project is in line with Nigeria's Electric Power Sector Reform Act (EPSRA) that emphasizes the diversification of energy sources, the use of Nigeria's abundant gas resources and an increase to Nigeria's generation capacity specifically through the new Independent Power Producers (IPPs) and the privatization of existing brownfield plants.
Nigeria faces acute power supply shortages which are a constraint to its ability to sustain economic growth. Increased power supply will reduce the cost of doing business, increase competitiveness and lead to increased employment. The Federal Government of Nigeria (FGN), through its current privatization effort, aims to generate an additional 6,000 MW of power by 2014, with 3,000 MW expected in 2013 through IPPs. In order to achieve this goal, the FGN has approached the Bank to provide PRGs to support the PPAs to be entered into between NBET and each selected IPP.
The Project will help to catalyze private sector finance in the gas and power sectors and increase the availability and reliability of power supply through increase in power output. The project will also help increase the supply of electricity to Nigeria.
The supply of affordable and reliable electricity will satisfy the electricity needs of households, industry and social sectors. This will contribute to improving electricity access rates, economic growth and the living conditions for the population. Project beneficiaries will span across diverse stakeholder groups, including the youth, women, other marginalized groups, small business owners and entrepreneurs. Additional economic activities resulting from increased and reliable source of energy will create additional direct and indirect jobs.
NJERU Anthony Karembu - ONEC1