World Bank sets aside $145 m for electricity
The World Bank Monday offered its first Partial Risk Guarantee (PRG) of $145 million to help improve the country's gas sector as well as increase electricity supply to consumers.
The PRG agreements in support of a Gas Supply and Aggregation Agreement (GSAA) were signed between the World Bank, Power Holding Company of Nigeria (PHCN), Egbin Power Plc, Chevron Nigeria Limited, and Deutsche Bank.
Under the 10-year GSAA, which is based on the industry template developed by the Nigerian National Petroleum Corporation (NNPC) and Chevron Nigeria Limited would provide gas to Egbin power plant, thereby assuring gas availability and reliability for power generation and assisting in economic growth.
A statement from the World Bank, said it would be the first time the Egbin power plant would be able to procure gas under long-term arrangements.
World Bank’s Country Director for Nigeria, Marie Francoise Marie-Nelly said: “With over 75 per cent of Nigeria’s power generation depending on natural gas, assuring the availability and reliability of gas supply is a critical step in realising the goal of un-interrupted electricity supply to Nigerian consumers."
The World Bank PRG, provided under the IDA-financed Nigeria Electricity and Gas Improvement Project (NEGIP), was key to enabling long-term gas supply arrangements.
PRGs are used to cover private lenders against the risk of a public entity failing to perform its payment or contractual obligations.
"The NEGIP PRG was instrumental in achieving financial closure of the Egbin GSAA transaction, by providing payment security for Chevron Nigeria for the supply of gas," the statement added.
The payment security instrument used was a 10-year Letter of Credit (L/C) issued by Deutsche Bank.
"The absence of long-term gas supply arrangement had been one of the main causes of power shortages in Nigeria, as the gas had to be procured on a ‘best endeavour’ basis, which often was of low quality and insufficient quantity, resulting in poor performance of the power plants. The long-term contracts enabled by the PRG will also help encourage investments in upstream gas production by international and domestic oil and gas companies," the bank said.
However, World Bank Manager of the Financial Solutions Unit, Pankaj Gupta said: “The use of the PRG to support Nigeria’s GSAA has provided the level of comfort needed by investors, and paved the way for a new commercial framework for gas contracts. This will help to catalyse long-term private investments in Nigeria’s gas sector and underpin future investments in the power sector,”
Under the NEGIP project, the World Bank has committed to a series of PRGs for a total of $400 million, of which the PRG for Egbin GSAA is the first to be signed