Nigeria - World Bank Yet To Approve Power Sector Risk Guarantee

The World Bank is yet to approve a Partial Risk Guarantee (PRG) that will be counter-guaranteed by the Nigerian Federal Government Sovereign Bond to enhance the sale of electricity in bulk to the 11 distribution companies unbundled from the Power Holding Company of Nigeria (PHCN).

Under the PRG arrangement, the bulk trader, a newly-created entity, which will remain government-owned after the privatisation of PHCN successor companies in October 2012 will buy power from the generation companies and sell to distribution companies.

The PRG is an instrument by the World Bank that provides that if a distribution company is unable to pay for the electricity purchased from a generating company, the Bulk Trader will step in and pay.

The PRG stemmed from growing concern among investors that distribution companies lack credit worthiness to purchase power directly from the generating companies.

A source within the Ministry of Power told local news agencies at the weekend that though the bulk trader has been created and a chief executive officer appointed, the World Bank board was yet to approve the PRG.

He said the delay in securing the approval of the board was due to the prevailing inefficient revenue collection system in the power sector, adding however that the approval would come by the end of this year when the privatisation process has been concluded.

“The PRG is an instrument that says that if all the revenue collected is insufficient to pay the generating company, then the bulk trader will step in and pay the difference. However, if the bulk trader is unable to pay the difference, the World Bank PRG will pay. So, the PRG is simply a letter of credit counter-guaranteed by Federal Government Sovereign Bonds,” he said.

He attributed the delay in the approval of the PRG to the current inefficient revenue-collection system in the power sector, adding that the situation will change after the privatisation exercise.

According to him, the new private investors would deliver more efficient services with better revenue collection mechanisms put in place.

He further stated that the newly-created bulk trader had commenced negotiation with private investors for bankable Power Purchase Agreement (PPA), in anticipation of the final approval of the PRG.

The official noted that the bulk trader was the primary guarantee of continued acquisition of new distribution capacity.

“We have a collection problem in the industry and that means that we have a credit worthiness problem. If you are not ready to collect your revenue, it is a major challenge. The only reason generating companies will sell power to distribution companies, which are not credit worthy is the Bulk Trader,” he added.

Africa Eagle gathered from local correspondents that the board of the bulk trader consisted of nine members with five representing the private sector and four representing various government agencies, while the Coordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, serves as the chairperson.