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Financing Facility for the Nigerian Power Distribution - DISCOs

Region
Western Africa
Sector
Energy
Scope
TA
Grant Amount
EUR 2,300,000
Total project cost
EUR 96,300,000
Status
Under disbursement
PFG Lead Financier
AFD

Nigeria’s electricity sector suffers from structural weaknesses and particularly from the obsolete infrastructure. This situation results from the low level of investment over the past decades, the lack of planning, and a discontinuous sectoral policy. The Federal Government has, however, undertaken an ambitious sector reform, which in 2013 led to the privatization of distribution assets (creation of 11 electricity distribution companies, called “DISCOs”) and production assets. Unfortunately, the newly privatized DISCOs face difficulties inherited from the previous period, while there are considerable financial needs in the medium term (estimated at over USD 1.8bn) in order to achieve the objectives set during the privatization. However, it is difficult to mobilize appropriate financing: although Nigerian banks actively participated in the privatization process by lending to new investors, they are extremely reluctant to finance DISCOs due to the sectoral risk, and none of their medium-term investments have been financed since the privatization. Consequently, due to the lack of appropriate financial instruments to support the structural investments of DISCOs, there is a risk that they will be postponed, which will delay the opportunity for DISCOs to more effectively manage, plan, maintain and develop their grids. Yet, it is essential to improve the performance of DISCOs in order to have a positive impact on the entire Nigerian power sector.
 
The programme aims to support the DISCOs through adequate financing in order to implement their investment plans. The eligible investment plans financed with AFD facility will focus on retrofitting the distribution grid, the reduction of losses and improving service quality and continuity. The program will include
- A long term credit facility from AFD to support Zenith Bank involvement in the financing of power distribution companies (DISCOs) in Nigeria. Zenith Bank will on-lend the funds borrowed from AFD to the DISCOs for eligible investments and according to its own credit procedures.
- A technical assistance (TA) programme managed by Association of Nigerian Electricity Distributors (ANED) to support the DISCOs in mobilizing financing, review the quality of projects, demonstrating the impact of their priority investments and promoting exchange of expertise and best practices among DISCOs through ANED. The TA will also provide assistance to the banking sector in better understanding the distribution business model, selecting and monitoring key priority projects financed through the credit facility.
The programme is based on three categories of actors: DISCOs, as final beneficiaries, Nigerian banks, and stakeholders in the technical assistance program, led by ANED, The banks, with support from the technical assistance, will be responsible for the identification and financing of investments, as well as for the supervision of the use of funds, including the impact indicators.
AFD signed with Zenith bank in May 2016 a subsidized credit facility for an amount equivalent to USD 100m. The project expects to have a demonstration effect at the country level, improving the interest of local financial institutions to finance other DISCOs.

AFD line of credit is combined with a EUR 2.3m European grant (ITF-SE4ALL) for the implementation of the technical assistance program. The technical assistance (TA) program, under the responsibility of the Association of Nigerian Electricity Distributors (ANED). ANED with AFD support is currently performing the recruitment of an international engineering consultant team.

The TA will specifically aim to increase access to financing for DISCOs and, more generally, promote the sharing of experience and good practices between DISCOs. The TA program will facilitate and supervise the implementation of the credit line, contribute to building the capacities of actors in the sector, and improve access to local bank financing. The recruitment of the consultant team is currently in process and will be completed by Q1 2017.

12/2016