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FG secures $500m World Bank loan to fund Discos

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The federal government has secured a $500 million loan from the World Bank to address the identified gaps in Nigeria’s Electricity Distribution Companies (DisCos).

This was disclosed in a statement by the spokesman of Bureau of Public Enterprises (BPE) Amina Othman.

According to Amina, the loan which was approved by the World Bank Board of Directors on February 4, 2021, is in support of the Nigerian Distribution Sector Recovery Programme (DISREP) and aimed at improving the financial and technical performance of the DisCos.

The programme seeks to bolster the financial and technical capacities of the DisCos through targeted investments and support for key elements of their Performance Improvement Plans (PIPs), which have received the nod from the Nigerian Electricity Regulatory Commission (NERC).

DISREP will focus on several critical areas, including the bulk procurement of customer and retail meters, the implementation of meter data management systems, and the establishment of a Data Aggregation Platform (DAP). Additionally, the programme aims to strengthen governance and transparency within the DisCos.

The loan is divided into two components: the Programme for Results (PforR), with an allocation of $345 million, and Investment Project Financing (IPF), with an allocation of $155 million.

The PforR component will support the execution of selected PIP elements, while the IPF component will finance the procurement of meters, the DAP, and provide technical assistance.

The BPE stressed that the DISREP loan, particularly the IPF component, is expected to yield significant benefits for the Nigerian Electricity Supply Industry (NESI).

These benefits include closing the metering gap, reducing Aggregate Technical, Collection, and Commercial (ATC&C) losses, improving remittances and liquidity for the DisCos, enhancing power supply reliability, and increasing transparency and accountability within the DisCos.

The concessional nature of the World Bank loan means it offers more favorable terms compared to commercial bank loans. This advantage will allow the DisCos to invest in essential distribution infrastructure, thereby improving ATC&C losses and enhancing the reliability of the power supply. Moreover, it aims to achieve financial sustainability in the power sector and boost transparency and accountability.

BPE noted significant progress in the DISREP programme’s preparation, highlighting several milestones. These include the Federal Executive Council’s (FEC) approval on August 3, 2022, the execution of the Financing Agreement by the Federal Ministry of Finance, Budget and National Planning, and the World Bank, and the adoption of the Program Operations Manual (POM) by BPE and the Transmission Company of Nigeria (TCN). Additionally, they obtained legal opinions from the Attorney-General of the Federation and executed the Subsidiary Loan Agreement. The DISREP Program was declared effective on January 31, 2023, followed by the inauguration of the DISREP Technical Committee on May 6, 2024, and its inclusion in the Federal Government Borrowing Plan, which the Senate Committee approved on May 16, 2024.

To ensure repayment, the BPE has obtained approval from NERC and the National Council on Privatisation (NCP) for a structured repayment hierarchy.

This structure prioritizes payments in the following order: statutory payments (taxes), repayment of Central Bank of Nigeria market loans, market obligations, repayment of the DISREP loan, and the net revenue of DisCos. This plan aims to mitigate repayment risks and defaults, with regulatory sanctions imposed for any defaults.

 

 

 

 

 

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