Fri. Dec 4th, 2020

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Why World Bank backs Osinbajo-led power reforms with $750 million

3 min read

The World Bank Board has approved $750 million facility for the Nigerian Power Sector in a bid to support the Buhari administration in providing constant power supply to Nigerians.

The facility under the Bank’s The Power Sector Recovery Programme (PSRP) buys time in favour of the Nigerian consumers as it forestalls the increase of tariffs especially for the lowest rungs of the consumers and imposes an obligation on DISCOS to step up their service delivery including issues of metering.

The comprehensive power reforms being instituted by President Muhammadu Buhari has seen the administration sign strategic power deals including one with the German government and Siemens.

In a statement by Shubham Chaudhury the World Bank Country Director on Wednesday, he said, “The target was to also achieve financial and fiscal sustainability and enhance accountability in Nigeria’s power sector.”

“The Power Sector Recovery Programme (PSRP) is expected to increase annual electricity supplied to the distribution grid, enhance power sector financial viability while reducing annual tariff shortfalls and protecting the poor from the impact of tariff adjustments.

“This will enable the turnaround of power sector while helping the Federal Government to redirect large fiscal resources from highly regressive tariff shortfall financing towards critical crisis-responsive and pro-poor expenditures. It will also increase public awareness about ongoing power sector reforms and performance.”

The Buhari administration has been working assiduously to improve on-grid and off-grid power supply. 

For the on-grid sector it would be recalled that President Buhari had on 8 March appointed Prof. Osinbajo to head the Power Sector Reforms Working Group.

The composition of the group was to consolidate the efforts of the federal and state governments to fix the power sector.

The group was tasked by the President with incorporating the ongoing efforts of the National Economic Council on power sector reforms and distribution company ownership and ensure all power sector initiatives were on the same page under Osinbajo’s leadership.

Membership of the group comprises the representative of the National Economic Council, NEC and the Nigeria Governors’ Forum, Governor Nasir El Rufai of Kaduna, the Minister of Power, Mr Saleh Mamman; the Minister of Finance, Budget and National Planning, Hajiya Zainab Ahmed; Central Bank of Nigeria Governor, Mr Godwin Emefiele; and Special Adviser to the President on Infrastructure, Ahmad Zakari, who is the secretary of the group.

Other innovative reforms to protect the consumers and improve accountability include the Service Reflective Tariff that is coming into effect on July 1st that prevents consumers from having Tariff increases by the DISCOs without a commiserate improvement in service quality and supply. Tariffs for the poor and those with low quality of service will be frozen. 

The funds from the World Bank will allow for continued subsidy for the poor, moving away from the current situation where 60% of the subsidy is enjoyed by the top 20% of the population at the expense of the poor. It is expected that the top 20% will pay more in this new approach. The Federal Government of Nigeria is still planning on spending N380 billion this year on tariff subsidy mainly targeted at the poor.

The President also approved for the Siemens Presidential Power initiative to proceed to enhance infrastructure in Transmission and Distribution. In addition the administration is pursuing $1.7 billion in a Distribution facility for DiSCOs from the World Bank and AFDB which will enhance bulk metering.

Also the administration is planning to execute a large rural electrification plan. With the planned approval of the Economic Sustainability Committee Plan by FEC there is a plan to rollout Off Grid systems to 25 million Nigerians (5 million households).

The approval of the $750 million PSRP facility by the World Bank represents significant progress and a confirmation from the Development Finance community that the administration’s plan for the sector is moving in an acceptable direction.

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