AfDB in talks with FG about writing off legacy debts in power sector

The African Development Bank (AfDB) says it is in talks with the federal government to agree on a way to write off legacy debts owed in the power sector and recapitalise the sector.

Wale Shonibare (pictured), the acting vice president for power, energy, climate and green growth, made this known while speaking on the sidelines of the ongoing annual meetings in Malabo, Equatorial Guinea.

“We are looking at how we can work to repair the balance sheet of the distribution companies,” he told TheCable.

“Everybody has to own up to the issues; there are regulatory issues, there are things that the government needs to do in terms of recapitalising the sector to get rid of legacy debts so we are talking to all the stakeholders.”

Speaking further, Shonibare said the bank is also working on a $400 million loan for the Transmission Company of Nigeria.

“We are working with the Rural Electrification Authority in terms of the evacuation of power. We are working with the TCN to process a transmission expansion loan which will ultimately run into $400 million. The loan will be disbursed in two parts. The first part will be approved this year, close to $200 million,” he explained.

“The loan is tied to the transmission grid starting from the north-west and the Niger Delta region. Phase two is looking at the northeast particularly the areas where we are facing significant challenge right now.”

Electricity tariffs need to be reviewed

According to the AfDB vice president, tariffs that reflect the true cost of supplying electricity has to be put in place to solve the liquidity challenges of the sector.

However, Shonibare said the quality of electricity supply has to be improved before reviewing tariffs.

“Everybody understands that there is a liquidity issue in Nigeria and it stems from the fact that distribution companies are unable to pay the entirety of the invoices they are getting for the power that they are taking from NBET,” he explained.

“And they have reasons for that and it includes not having cost reflective tariff but if you are going to increase tariff, you have to recognise that you have to improve the quality of electricity. So there is an ongoing discussion about the implementation of the PSRP and that also includes governance issues, how do you constitute the boards of the distribution companies?

“Those discussions are still ongoing, hopefully when a new cabinet is constituted we can make speedy progress.”