FG obtains a $500 million loan from the World Bank for the electrical industry

Following the nationwide price rise for the nation’s largest consumers last month, the federal government has obtained a $500 million World Bank loan to improve power distribution in the electricity industry.

The World Bank approved the loan in 2021, and the Bureau of Public Enterprise (BPE) said on Thursday that it was added to the government’s borrowing plan this month after reaching specific benchmarks.

The goal of the concessionary loan is to improve the technical and financial performance of distribution businesses, which have had difficulty growing their capacity for more than ten years after Nigeria privatized its power industry.  

Backstory

The World Bank authorized $500 million in 2021 to help Nigeria enhance its electricity distribution system.

Through this program, power distribution businesses will be forced to engage in network rehabilitation, install electric meters for more precise consumer invoicing, and enhance grid reliability for those who are already connected.

To lessen the burden on public coffers and cut subsidies, the Nigerian Electricity Regulatory Commission (NERC) increased rates for Band A customers who received at least 20 hours of electricity per day last month.

However, the public, corporations, labor and trade unions, and stakeholders are against this approach.

The raise was criticized by the Abuja Chamber of Commerce and Industry (ACCI), which claimed that it endangered companies’ long-term survival.

However, according to the Organised Private Sector (OPS) in Nigeria, 65% of the nation’s firms may close as a result of the increase in electricity prices.

Nigeria is the nation with the highest electricity tariff in the world, according to the current tariff rate, which puts it only below the US and Germany.

Furthermore, claiming that the increase in electricity prices is anti-people and demanding a reversal, the Nigeria Labour Congress (NLC) and other affiliated labor organizations across the nation have criticized the move.  

Electricity distribution firms and manufacturers are at odds right now since the latter has urged its members to refuse to pay the existing tariff. The Manufacturers Association of Nigeria (MAN) has petitioned the regulatory body NERC to reverse the revised electricity tariff in response to discos.

In contrast, the Discos have threatened to cut off firms’ access to energy if they fail to pay the new tariff rate.

FG’s rebate on electricity

The federal government would spend around N1.67 trillion on electricity subsidies in 2024, up 170% from the amount spent the year before, according to our previous analysis on The News Chronicles. 

In the past, the World Bank has suggested reducing subsidies to aid Nigeria in strengthening its public finances. Nigeria’s power industry has many challenges, such as a deteriorating grid, low gas supplies, excessive debt, and vandalism. Nigeria produces only approximately 25% of its installed capacity of 12,500 megawatts, therefore many of its citizens are dependent on expensive diesel-powered generators.