AFRICAN DEVELOPMENT FUND
PROGRAM:
PARTIAL RISK GARANTEE IN SUPPORT
OF THE POWER SECTOR PRIVATIZATION
COUNTRY:
FEDERAL REPUBLIC OF NIGERIA
APPLICANT:
NIGERIA BULK ELECTRICITY TRADING PLC
PROJECT APPRAISAL REPORT
ONEC DEPARTMENT
December 2013
TABLE OF CONTENTS
PROGRAM SUMMARY ...................................................................................................... v
RESULTS-BASED LOGICAL FRAMEWORK .................................................................. vi
IMPLEMENTATION SCHEDULE .................................................................................... vii
1 STRATEGIC THRUST & RATIONALE ...................................................................... 1
1.1 Program Linkages with Country Strategy and Objectives ........................................ 1
1.2 Rationale for Bank Group Involvement ................................................................... 2
1.3 Aid Coordination .................................................................................................... 2
2 PROGRAM DESCRIPTION ......................................................................................... 3
2.1 Overview ................................................................................................................ 3
2.2 Program Components .............................................................................................. 4
2.3 Program Methodology ............................................................................................ 5
2.4 Eligibility Criteria ................................................................................................... 5
2.5 Pipeline IPPs ........................................................................................................... 6
2.6 Technical Solutions Adopted and Alternatives Considered ...................................... 7
2.7 Program Type ......................................................................................................... 7
2.8 Program Cost and Financing Arrangements............................................................. 7
2.9 Program’s Target Area and Development Impact .................................................... 8
2.10
Participatory Approach ........................................................................................ 8
2.11
Bank Group Experience and Lessons Reflected in Program Design ..................... 8
2.12
Key Performance Indicators ................................................................................ 9
3 PROGRAM FEASIBILITY ........................................................................................... 9
3.1 Financial and Economic Performance ..................................................................... 9
3.2 Environnemental and Social Impact ...................................................................... 10
4 PROGRAM IMPLEMENTATION .............................................................................. 12
4.1 Implementation Arrangements .............................................................................. 12
4.2 Program Monitoring and Evaluation...................................................................... 14
4.3 Governance ........................................................................................................... 14
4.4 Sustainability ........................................................................................................ 15
4.5 Risk Management ................................................................................................. 15
4.6 Knowledge Building ............................................................................................. 17
5 LEGAL INSTRUMENTS AND AUTHORITY ........................................................... 17
5.1 Legal Instrument ................................................................................................... 17
5.2 Conditions for Bank Intervention .......................................................................... 17
6 RECOMMENDATION ............................................................................................... 19
Appendix I: Nigeria’s Comparative Socio-Economic Indicators
Appendix II: ADB Portfolio in Nigeria
APPENDIX III: Similar Projects in Nigeria
Appendix IV: Map of Project Area
Appendix V: Indicative Term Sheet
UA 1
UA 1
CURRENCY EQUIVALENTS
October2013
USD 1.53
NGN 237.94
FISCAL YEAR
1 January - 31 December









m
cm
mm
km
m²
cm²
km²
ha
t (t)
WEIGHTS AND MEASURES
Meter
kilogram of oil equivalent
 KOE
centimeter = 0.01 meter
kilovolt = 1 000 volts
 kV
millimeter = 0.001 meter
kilovolt ampere (1 000 Va)
 KVa
kilometer = 1 000 meter
kilowatt = 1 000 Watts
 KW
square meter
gigawatt (1000 000 kW or 1000 MW)
 GW
square centimeter
megawatt (1 000 000 W or 1 000 kW
 MW
square kilometer = 1 000 000 m²
kilowatt hour (1 000 Wh)
 KWh
hectare = 10 000 m²
megawatt hour (1 000 KWh)
 MWh
metric tonne (1 000 kg)
gigawatt hour (1 000 000 KWh)
 GWh
i
ACRONYMS AND ABBREVIATIONS
ADB
ADF
CSP
DFID
DisCo
ESIA
ESMP
FGN
FMENV
FMF
FMP
GenCo
IDA
IPP
MIGA
MYTO II
MW
NBET
NDPHC
NERC
NGFO
NGN
NIAF
NIPP
ONEC
PHCN
PPA
PPP
PRG
PRSP
TCN
TA
UA
USAID
USD
WB
African Development Bank
African Development Fund
Country Strategy Paper
Department for International Development
Distribution Company
Environmental and Social Impact Assessment
Environmental and Social Management Plan
Federal Government of Nigeria
Federal Ministry of Environment
Federal Ministry of Finance
Federal Ministry of Power
Generation Company
International Development Association
Independent Power Producer
Multilateral Investment Guarantee Agency
Multi-Year Tariff Order II
Megawatt
Nigeria Bulk Electricity Trading PLC
Niger Delta Power Holding Company Limited
Nigeria Electricity Regulatory Commission
ADB’s Nigeria Field Office
Nigerian Naira
Nigeria Infrastructure Advisory Facility (DFID funded)
National Integrated Power Projects
Operations Energy, Environment and Climate Change Department
Power Holding Company of Nigeria
Power Purchase Agreement
Public-Private Partnership
Partial Risk Guarantee
Poverty Reduction Strategy Paper
Transmission Company of Nigeria
Transformation Agenda
Unit of Account
United States Agency for International Development
United States Dollar
World Bank
ii
PROGRAM INFORMATION SHEET
Client Information
Borrower/ Counterindemnity Provider
Executing Agency
Implementing Agency / Applicant
Federal Republic of Nigeria (FGN)
Federal Ministry of Power (FMP)
Nigeria Bulk Electricity Trading PLC (NBET)
FINANCING PLAN
Amount (UA
million)
Sources
African Development Fund (ADF)
ADF
120
2
122
Total Cost
Instrument
PRG
Loan
KEY FINANCIAL INFORMATION
ADF Loan
ADF Partial Risk Guarantee
Commitment
Currency
Unit of Account (UA)
Unit of Account (UA)
Currency
United States Dollar (USD)
United States Dollar (USD)
Interest Rate
1%
N/A
Interest Rate
Margin
N/A
N/A
Service Charge
0.75% yearly on the disbursed and
outstanding.
N/A
Guarantee Fee
N/A
Equivalent to ADF loan service charge of
0.75% per annum on the face value of the
drawn portion of the Guaranteed Amount.
Commitment Fees
0.50% yearly on the undisbursed
portion of the loan starting 120 days
after the signing of the agreement.
N/A
Standby Fee
N/A
Equivalent to ADF loan commitment fee of
0.50% per annum that will be charged on the
face value of undrawn portion of the
Guaranteed Amount.
Front-end Fees
N/A
Up to 1% of the Guaranteed Amount.
N/A
Legal and other out of pocket expenses incurred
by the ADF during the initiation, appraisal and
underwriting process of a guarantee, other than
the Banks traditional operational expenses, will
be charged to the beneficiary.
Tenor
30 years
The Guarantee tenor may vary for each project
under the Program depending on the
requirements of the specific underlying
transaction. The Guarantee will be in place until
the market is mature and the guarantee
applicant, NBET, hands over PPA obligations
to the individual distribution companies and
hence the guarantee is withdrawn.
Grace Period
8 years
N/A
Other Fees
iii
KEY FINANCIAL & ECONOMIC OUTCOMES
Analysis
Financial Analysis
Okija IPP
Ikot Abasi IPP
Ughelli
Economic Analysis
Program
NPV (USD million)
IRR (%)
62.2
83.0
15.3
22%
21%
16%
1,929.9
34%
TIMEFRAME – MAIN MILESTONES
Concept Note Approval
Program Approval
Completion (Component 2)
Last Disbursement (Component 2)
29 August 2013
December 2013
1 March, 2017
1 September 2017
iv
PROGRAM SUMMARY
Program Overview: The Partial Risk Guarantee Program in Support of the Power Sector
Privatization aims to increase electricity generation in Nigeria by catalysing private sector
investment and commercial financing in Nigeria’s power sector through the provision of Partial
Risk Guarantees (PRGs). The ADF PRGs will mitigate the risk of the Nigeria Bulk Electricity
Trading Plc (NBET), a Federal Government of Nigeria (FGN) entity established to purchase
electricity from independent power producers (IPPs), not fulfilling its contractual obligations
under its power purchase agreements (PPAs) with selected IPPs. The ADF PRGs offered under
the Program will mitigate the political risk and increase the comfort level of private sector
investors/ commercial lenders investing in the Nigerian power privatization program. It will
therefore support the FGN in its efforts to reform the power sector and position the country on
a sustainable growth path.
Program Impact: An effective and steady power supply is critical to the sustainability of
Nigeria’s development path. According to FGN statistics, power outages cost Nigeria about
3% of its GDP annually. It is anticipated that the IPPs eligible for coverage under the Program
could generate an additional 1,380 MW of power by 2016, thereby contributing to increasing
the population’s access to more reliable and affordable electricity (from 41% currently to 50%
by 2016).
Needs Assessment: Nigeria, in its development objective to rank amongst the top 20
economies of the world by the year 2020, targets an ambitious 40,000MW of electricity
generation. With a population surpassing 160 million, Nigeria’s current maximum electricity
generation capacity, estimated at approximately 5,500 MW, is inadequate to meet the
unsuppressed demand estimated at approximately 10,000 MW. Only about 41% of the
population currently has access to electricity; and for that segment of the population, only 30%
of its needs are currently met. To meet the generation targets set for 2020, significant private
sector investment is required in the supply chain, including generation, gas to power
infrastructure and distribution networks. The reform of the power sector started in 2005 with
the enactment of the Electric Power Sector Reform Act (EPSRA) and was accelerated in 2010
with the Power Sector Reform Roadmap. Nigeria faces a range of challenges implementing the
Power Sector Reform Roadmap, and providing comfort for private sector investment into its
privatised power market is one of the main challenges.
Bank Group’s Added Value: The Bank Group’s objective in introducing the ADF PRG
instrument was to crowd in private financing by covering government related risks that the
market is neither able to absorb nor mitigate. This ADF PRG Program, in support of the
Nigerian Power Sector, will therefore directly contribute to the Bank Group’s objective.
Moreover, it is essential that Bank Group leverages its resources in Nigeria given the magnitude
of the financing requirements. This requires novel approaches, such as the use of PRGs, with
their leveraging factor as part of the financing mix for maximum value addition.
Knowledge Management: The ADF PRG will provide innovative risk mitigation for
NBET, in support of private sector power projects. The innovative approach, for crowding-in
private financing for infrastructure investments, will have a catalytic and replication effect both
in Nigeria and more broadly in Africa. The lessons learned from this operation will provide
useful insight into the promotion of private investment for infrastructure projects using
guarantees in Nigeria and other African countries going forward.
v
RESULTS-BASED LOGICAL FRAMEWORK
KEY ACTIVITIES
OUTPUTS
OUTCOMES
IMPACT
Country and Program Name: : Nigeria – Partial Risk Guarantee in Support of the Power Sector Privatization
Purpose of the program: Increase electricity generation in Nigeria by catalyzing private sector finance in the power sector through provision of partial risk guarantees in favor of Independent Power Producers
(IPPs) to mitigate certain political risks
PERFORMANCE INDICATORS
RISKS /
RESULTS CHAIN
Indicator
MEANS OF VERIFICATION
MITIGATION MEASURES
Target
Baseline
2016
(including CSI)
- Publications from:
Increased
* FMP
productivity,
* NBET
economic activity
Electricity access rate (%)
41 %
50 %
* NERC
and growth, and
* NBS
reduced poverty in
- Project progress and
Nigeria
completion reports
Outcome
Governance risks such as accountability challenges and vulnerability to vested
interests could have debilitating effect on the power sector in Nigeria. Mitigation:
Nigeria has steadily progressed in achieving measures to improve public resource
Increased maximum Volume of power (in MW) supplied to 5,500
8,000
management and there is a strong level of commitment to the success of the reform.
electricity supply
meet maximum electricity demand
MW
MW
Liquidity risk due to weak billing and collection of payments due by the end consumer
and lack of appropriate metering systems. Mitigation: DisCos have recently been
- Publications from:
privatized and are expected to improve efficiency in billing and collection of payments.
* FMP
Nevertheless, in case of non-payment, NBET will have the right contractually to partly
* NBET
curtail or withhold energy deliveries to DisCos. This will be in turn an incentive for
- Project progress and
DisCos to pay their bills.
completion
reports
Increased
Weak operational capacity and poor financial standing of NBET. Mitigation: NBET
Average
volume
of
electricity
consumption per
121 KWh
210 KWh
capitalisation by FGN of approximately USD 820 million and NBET’s liquidity
consumed
by
inhabitant
capita
enhancement, which includes guarantees covering 3 months of power purchases
revenues due from distribution companies. .Combined with the Bank’s ongoing budget
support to the sector these measures should help address any potential capacity and
financial issues.
Output
-Power plants generation capacity:
- Plants:
-Plants:
Transmission and distribution service deficiencies and inability to evacuate and
distribute the energy generated by the IPPs. Mitigation: Agreements being entered
-Power plants
* Okija IPP/or eligible IPP *0 MW
*495MW
into between greenfield power producers and TCN to construct transmission lines to
rehabilitated and/or
* Ikot Abasi IPP/ or eligible IPP *0 MW
*250MW
evacuate power. The Bank’s ongoing sector budget support and the ongoing handover
commissioned
* Yellowstone IPP/ or eligible IPP *0 MW
*351MW
- Publications from:
of TCN to a short-term private manager.
* Ughelli IPP/ or eligible IPP *330 MW *614MW
* NBET
IPPs construction and/or rehabilitation risks leading to delays. Mitigation:
* FMP
Assessment of the technical and financial standing of the EPC contractors before
* Supervision Missions,
financial close. Provisions for construction delay liquidated damages and penalties in
- Training provided
- Total Number of staff trained
*10 staff
*185 staff - Project progress and
EPC contract.
to NBET and NERC
trained
trained
completion reports
Gas supply risks due to security concerns in the Niger Delta region with pipeline
staff
vandalism. Mitigation: The Gas Supply Agreement (GSA) will include liquidated
- Number of Female staff trained
*2
*30
damages provisions. Security is one of the priorities of the FGN’s Transformation
- Training of female
Female
Female
Agenda with renewed efforts to end militancy in the Delta region.
staff
staff
staff
trained
trained
INPUTS
1.Procurement of a commercial bank for the issuance of the revolving standby letter of
credit (L/C)
2. Issuance of L/C for the account of NBET to each IPP
IPPs related activities
3. Construction of three greenfield gasPower Plants and rehabilitation of one brownfield
gas Power Plant
- ADF Partial Risk Guarantees having a total face value amount of UA 120 million (USD 180 million), UA 30 million
4. Upgrading of the 330 kV transmission line that runs parallel to the Okija site and
deducted from the country’s PBA
construction of a 20 kms long 18”gas pipeline
- ADF loan amounting to UA 2 million for capacity building (to NBET and NERC)
5. Erection of a 3 km 330KV transmission line in Akwa Ibom State. Assembling of an 18”
natural gas pipeline in Akwa Ibom State
6. Construction of a 2 km double circuit 330 kV overhead line connecting Yellowstone
IPP to the Ajaokuta substation
7. Technical Assistance trainings
vi
IMPLEMENTATION SCHEDULE
vii
REPORT AND RECOMMENDATION OF MANAGEMENT TO THE BOARD OF DIRECTORS
ON A PROPOSED PARTIAL RISK GUARANTEE PROGRAM
TO THE FEDERAL REPUBLIC OF NIGERIA IN SUPPORT OF THE POWER SECTOR
Management submits the following report and recommendations on a proposed Partial Risk
Guarantee (PRG) Program to the Federal Government of Nigeria (FGN) in support of the power
sector privatization. The first tranche of the PRG Program will be for a total PRG face value amount
of UA 120 million (approximately equivalent to USD 180 million), which would use UA 30 million
of Nigeria’s ADF 12 PBA. An ADF loan of UA 2 million will also be provided for the capacity
building of the main sector players. Management also notes, for the Board’s information, that the
Program could be expanded with a second tranche composed of ADF 13 PBA resources, ADB
resources and/or other funds as requested by the FGN and as available beginning in 2014.
1
STRATEGIC THRUST & RATIONALE
1.1
Program Linkages with Country Strategy and Objectives
1.1.1 Nigeria’s weak power sector continues to hinder every aspect of the country’s economy and
growth prospects. The improvement of the sector is thus one of the Federal Government of Nigeria’s
(FGN) key operational objectives. The proposed program is in line with the FGN’s long-term
development agenda Vision 20:2020 and its strategic direction as detailed in the Transformation
Agenda (TA 2011-2015). The FGN aspires to be among the top 20 economies in the world by the
year 2020. Vision 20:2020 has identified the improvement of the provision of electricity as a key
priority and sets an ambitious national generation capacity target of 40,000 MW by the year 2020.
The TA 2011-2015 has also identified critical infrastructure development, i.e. power, roads
transportation, railways, and agricultural transformation, as key to its operational success.
1.1.2 The Bank Group’s current CSP for Nigeria (2012-2016) aims primarily at promoting inclusive
and green growth, in line with the Bank Group’s Ten-Year Strategy (2013-2022), and focuses on the
following two pillars: (i) promoting the development of a sound policy environment, and (ii) investing
in critical infrastructure to promote the development of the real sector of the economy. It recognizes
the huge financing needs of the country and the relatively small size of Nigeria’s ADF resource
envelop with the expectation that Nigeria will soon graduate from a blend to an ADB-only country.
The strategy thus focuses on fostering a good policy environment and investing in critical
infrastructure. A sound policy environment would ensure effective transformation of Nigeria’s
commodities-oriented economy (agriculture and crude-oil production) into an industrial,
manufacturing and tradable services-oriented economy. PRGs are specifically referred to in the CSP
as necessary “to help crowd in private financing, accelerate foreign direct investment, and encourage
private sector participation in public-private partnerships, in particular Independent Power
Producers (IPPs)”. The proposed Program, in its objective to attract private financing for the power
sector infrastructure, which is critical for fostering inclusive growth, fits perfectly with each pillar of
the CSP and furthers the Bank Group’s mission in Nigeria.
1.1.3 Finally, the Program will contribute to the green and inclusive growth pillar of the Bank
Group’s Ten-Year Strategy (2013-2022). It will result in climate resilience and will increase the
energy access rate by replacing expensive and heavily polluting emergency and/or individual dieselfired generators by a cleaner source of energy (gas fired thermal plants essentially) and securing the
power generation capacity required to adequately supply reliable and affordable electricity to end
users.
1
1.2
Rationale for Bank Group Involvement
1.2.1 Nigeria electricity consumption per capita is amongst the lowest in the world, with long power
outages, poor quality of supply, and low access to electricity. The country’s current generation
capacity includes three hydroelectric and eight thermal power plants from the Power Holding
Company of Nigeria (PHCN), the state-owned holding company, ten thermal power plants from the
National Integrated Power Project (NIPP), a Government sponsored programme, and eight privatelyowned Independent Power Producers (IPPs) having a total installed capacity of about 10,000 MW
(2012). Yet, due to the poor maintenance of the facilities and the erratic gas supply, only about 5,500
MW (representing about 55%) of the installed capacity is currently available to be evacuated to the
transmission grid. The available capacity falls significantly short of the demand currently estimated
at about 10,000 MW. The ongoing sector privatization reform seeks to address this gap.
1.2.2 To redress the deteriorating power supply situation in Nigeria, the FGN enacted the Electric
Power Sector Reform Act (EPSRA) in 2005 to prepare the regulatory environment for private sector
participation. The reform for the sector was revived in 2010 with the Power Sector Reform Roadmap
which is successfully being implemented despite some challenges. The Power Sector Reform has led
to the unbundling of the PHCN into 18 different companies - 11 distribution companies, 6 generation
companies and 1 transmission company. Some major achievements include the establishment and/or
strengthening of key institutions such as the Nigeria Bulk Electricity Trader (NBET) and the Nigerian
Electricity Regulatory Agency (NERC) as well as the payment by the distribution and generation
successor companies to PHCN for a total amount of around $2.5 billion, which represents the total
value of the share sale price of the privatized assets. A cost-reflective tariff, the Multi-Year Tariff
Order (MYTO) II, has been introduced on 1st June 2012 to make the sector attractive to both local
and foreign investors. A detailed overview of the Nigerian power sector, as well as the status of the
reform, is provided in Annex A.2.
1.2.3 The FGN aims at significantly increasing power generation in Nigeria by allowing privatelyowned IPPs to produce and supply power to the national grid, with a target to generate an additional
6,000 MW of power by 2016. In order to achieve this target, significant investments are expected
from IPPs and as such, the FGN has approached the Bank Group to provide PRGs to support the
contractual obligations of the NBET, which has been mandated to negotiate and implement power
purchase agreements (PPAs) with IPPs on behalf of the distribution companies (DisCos) for an
interim period to provide market certainty and confidence. The interim period, with NBET as bulk
purchaser and reseller of electrical power, will last until DisCos establish their creditworthiness and
the market is able to function on a bilateral basis between generation companies (GenCos) and
distribution companies (DisCos). The Bank Group aims to support the FGN in its efforts to reform
the sector, catalyze private sector investment and commercial financing, and position the country on
a sustainable growth path through issuance of the PRGs. The provision of PRGs to backstop the
payment obligations of NBET will have the effect of assisting the country in achieving its power
generation objectives while minimizing public sector financing.
1.3
Aid Coordination
1.3.1 There is considerable donor activity in the Nigerian power sector through investments,
technical assistance, advisory services and capacity building support. The World Bank Group
(WBG), in particular, offers a guarantee product that is similar in nature and scope to that of the Bank
Group PRGs. The WBG’s Nigeria portfolio includes a program of IDA Partial Risk Guarantees
(PRGs) in the amount of US$ 400 million in support of gas supply and aggregation agreements for
oil companies under the Nigeria Electricity and Gas Improvement Project. The Bank Group held
extensive discussions with IDA on a co-guarantee project that would provide a super Line of Credit
(L/C) to the IPPs in power sector. The approach was abandoned for each individual institution to
2
cover a number of separate projects nominated by NBET. The WBG is thus currently preparing a
PRG operation in support of a series of IPPs in parallel with the subject Program. Nevertheless, given
the number of IPPs coming on-stream and the magnitude of their needs during this interim phase of
the privatization process, both WBG products and the Bank’s products will be offered
complementarily.
1.3.2 The UK’s Department for International Development is supporting the development of energy
infrastructure through its Nigeria Infrastructure Advisory Facility (NIAF) under which a number of
advisory services on energy sector issues are being provided to the FGN. The United States and its
Agency for International Development (USAID) are engaged in various activities through USAID’s
Africa Infrastructure Program in providing credit guarantees in support of small renewable energy
projects and the Power Africa initiative recently announced by President Obama which aims at
doubling access to power in Sub-Saharan Africa and for which the Bank is a strong partner. Other
institutions involved in the power sector include the Agence Française de Développement which is
supporting transmission line projects, and the German KfW, which is engaged in the rehabilitation of
power plants.
1.3.3 To improve aid effectiveness, donors have developed a Country Assistance Framework (CAF)
which provides a common understanding of the development challenges that Nigeria is facing and
upon which donors develop their own strategies. For the power sector, donors collaborate through the
Donor Coordination Group on Power, which is a forum for coordination of donors’ interventions in
the sector.
2
PROGRAM DESCRIPTION
2.1
Overview
2.1.1 The introduction of the ADF PRG instrument (a description of the PRG instrument is provided
in Annex C) by the Bank Group in 2011 has strengthened the Bank Group’s position as one of the
main development partners of the Federal Government of Nigeria (FGN) for the implementation of
the Nigerian power sector privatization reform. In this regard, the Bank was officially requested in
May 2013 to provide ADF PRGs to nominated IPPs, as well as capacity building assistance to key
institutions involved in Nigeria’s power sector reform. Along with the capacity building component,
the issuance of PRGs will give comfort to private investors and/or commercial lenders and mitigate
against the risk of NBET not fulfilling its contractual obligations under the Power Purchase
Agreements (PPAs) that will be concluded with each IPP. It will cover the risk of non-payment by
NBET for electricity delivered by the IPPs. For each IPP, the amount covered by the PRG would be
capped at an amount equivalent to 3 months of payments for electricity delivered to NBET. It should
be noted that the public sector window of the Bank is not investing in any infrastructure under this
proposed Program, while the private sector window (OPSM) is considering providing senior debt to
some of the IPPs being supported by the Program.
2.1.2 The PRGs will only cover the transitional period of the power sector reform (a detailed
description of the power sector reform is provided in Annex A), whilst NBET plays the role of
intermediary between the IPPs and the DisCos. During that period, all the stakeholders in the sector
will require some level of comfort pending the outcome of the ongoing power sector reform. The
NBET was created in order to provide that comfort and hence build the credibility of the DisCos.
Once the DisCos have established a robust billing system, a follow-up mechanism, a strong credit
standing, and have gained the confidence of IPPs to engage in direct negotiations with them, the role
of the NBET will no longer be required. In the new system, which has resulted from the power sector
reform, there is an emergence of several institutions and it is important that the various contracts and
3
agreements that will be signed between the different parties be adhered to. This will provide the
ultimate comfort for any future investors in this new contracts based system.
2.2
Program Components
2.2.1 The program has two components:
 Component 1: Provision of Partial Risk Guarantees (PRGs) to support selected IPPs
nominated by NBET.
 Component 2: Capacity Building in favour of key institutions involved in Nigeria’s power
sector reform, notably NBET and the Nigerian Electricity Regulatory Commission (NERC)
with respect to implementation and enforcement of procurement as well as environmental and
social rules and regulations. Measures will be undertaken to ensure equal opportunity and
adequate participation of female staff.
2.2.2 For Component 1, it is anticipated that the financing structure for each PRG will involve a
revolving standby letter of credit (L/C), in an amount not exceeding the equivalent of three (3) months
of payments for electricity delivered, issued by a commercial bank (L/C Issuing Bank) to a specific
IPP as payment security for certain payment obligations of NBET under the relevant PPA. In the
event of non-payment by NBET of an invoice for electricity delivered, and in accordance with the
terms of the L/C, the IPP would be entitled to draw under the L/C. In which event, the L/C Issuing
Bank would be entitled to recover from NBET amounts paid to the IPP with a specified
reimbursement period to be discussed and agreed with each L/C Issuing Bank. Each PRG will
backstop the debt obligation of NBET to the L/C Issuing Bank for any amount drawn by an IPP under
the L/C and not reimbursed by NBET to the L/C Issuing Bank within the specified timeframe. In the
event that NBET fails to honor its payment obligations to the L/C Issuing Bank, the Bank will pay an
amount equal to the amount drawn under the L/C and not reimbursed by NBET plus accrued interest,
if any, to the L/C Issuing Bank, up to the aggregate maximum amount of the specific PRG. The FGN
will indemnify and reimburse the Bank for all amounts paid to the L/C Issuing Bank under the PRG.
The tenor of each PRG could technically match the underlying life of the project or at most the tenor
of the PPA; however, it should be noted that once there is sufficient comfort in the market and the
NBET hands over PPA obligations to individual privatized DisCos, the PRG will be withdrawn, as
the obligations will no longer be those of a sovereign entity. Figure 2.1 below depicts the framework
for the PRG component.
4
Figure 2.1 PRG Framework
2.2.3 For Component 2, NBET and NERC will receive technical assistance support, amounting to
UA 2 million, to enhance the FGN’s capacity to sustain and regulate the privatized power sector. To
increase the Program and the sector’s sustainability, IT equipment, training and consultancy services
will be provided in various fields, from environmental and social assessment to procurement, in order
to strengthen these institutions’ ability to successfully perform their roles during the transitional
period and beyond. Technical advisers (individual consultants) will be provided to them as
appropriate and groups of officials and staff will be chosen from each of the proposed Program
beneficiaries to take part in international training programs. This component will provide hands-on
skills to enable the staff in these key public institutions to monitor the Program and more generally
the whole sector. It is anticipated that once the market matures and the role of NBET is taken over by
the DisCos, the NBET staff will remain at the level of the Federal Ministry of Power and the skills
they would have acquired with this technical assistance component would still be relevant for the
sector. The participation of female staff in the trainings will be encouraged to ensure equal
opportunity. Details of the various capacity building activities are presented in Annex B.5 (table B.5.1).
2.3
Program Methodology
2.3.1 The proposed methodology for this program entails the development of a strong pipeline of
IPPs that would each benefit from a PRG. The first tranche of the Program will use the ADF 12
resources allocated by the FGN, which amounts to UA 30 million and translates into a PRG with a
cumulative face value amount of UA 120 million (approximately equivalent to USD 180 million).
This first tranche could be complemented in 2014 and beyond by a second tranche from ADF 13
resources and/or ADB resources, depending on the request from the FGN.
2.3.2 Once the PRG Program is approved by the Board, each individual PRG proposal for a specific
IPP will be processed for approval by the Board on a lapse of time basis (LOTB). Each individual
PRG proposal for a specific IPP will be thoroughly assessed before its submission to the Board, in
line with the Bank Group’s standard technical and commercial viability, environmental and social
compliance and other criteria defined below.
2.4
Eligibility Criteria
5
2.4.1 A set of criteria has been developed for assessing prospective IPPs, and the criteria have been
differentiated for greenfield and brownfield IPPs.
2.4.2 The set of criteria for the greenfield IPPs will include the requirement to submit the following:
(i) completed Environmental and Social Impact Assessment (ESIA) and Resettlement Action Plan
(RAP) acceptable to the Bank; (ii) signed or substantially negotiated Gas Supply Agreement; (iii)
signed or substantially negotiated Grid Connection Agreement and Ancillary Service Agreement; (iv)
signed or substantially negotiated PPA; (v) signed or substantially negotiated Engineering,
Procurement and Construction (EPC) contract; (vi) evidence of appropriate use of funds for economy,
fairness, and efficiency of the procurement process; and (vii) assessment of the commercial viability
of the IPP together with evidence of secured commercial financing (i.e. the IPP should have reached
financial close or have an initialled loan agreement).
2.4.3 The set of criteria for brownfield IPPs includes: (i) completed ESIA audit acceptable to the
Bank; (ii) availability of additional gas to supply the rehabilitated / expanded power plant; (iii)
availability of sufficient transmission capacity to evacuate the additional generation from the
rehabilitated / expanded power plant; (iv) signed or substantially negotiated EPC contract for the
rehabilitation / expansion of the power plant; (v) evidence of appropriate use of funds for economy,
fairness, and efficiency of the procurement process; and (vi) an assessment of the commercial
viability of the IPP together with evidence of secured commercial financing for the rehabilitation /
expansion (i.e. the IPP should have reached financial close or have an initialled loan agreement).
2.4.4 Finally, in order for the IPPs, within the pipeline, to benefit from the PRGs, the Bank will
have to be satisfied that these IPPs are contributing to development outcomes.
2.5
Pipeline IPPs
2.5.1 A pipeline of IPPs has been developed based on nominations from the FGN, discussions with
some IPPs which approached the Bank for a PRG and a preliminary assessment of the readiness of
the IPPs by the project team. The FGN initially nominated five (5) greenfield IPPs, out of which two
(2) were included in the pipeline. Some IPPs approached the Bank directly and two (2) were included
in the pipeline following confirmation of the FGN’s interest in supporting those IPPs. The pipeline is
not exhaustive and is subject to change depending on the pace of development of the IPPs included
in the pipeline and the progress of potential new candidate IPPs.
2.5.2 Greenfield IPPs: Three Greenfield IPPs have been included in the pipeline:
 Okija IPP consists of the design, construction and operation of a 495 MW open cycle gas to
power plant at Okija, Anambra State in the South East of Nigeria by end 2016. The Bank has
been mandated as the Global Coordinating Bank and the private sector department (OPSM)
is currently undertaking its due diligence on the project.
 Ikot Abasi IPP consists of the design, construction and operation of two floating barges
mounted with two gas turbines having a total output of about 250 MW in Ikot Abasi LGA in
Akwa Ibom State by end 2016. The Bank has been requested to play a leading role in the
financing of the project, which it is currently assessing.
 Yellowstone IPP consists of the development of a gas-fired power plant with an installed
capacity of 350 MW and located directly adjacent to Geregu Power Plants (combined capacity
of 868 MW) in Ajaokuta, Kogi State by end 2016. The Bank was requested to play a leading
role in the financing of the project and the private sector department (OPSM) is currently
undertaking its preliminary review of the project.
6
2.5.3 Brownfield IPPs: One Browfield IPP has been included in the pipeline: Ughelli. The IPP is a
gas fired thermal plant situated in Delta State with an installed capacity of 972 MW and available
capacity of 333 MW as at September, 2012. The Transcorp Consortium has now acquired 100%
equity stake in Ughelli Power Plc as per the Share Sale Agreement signed with the Bureau of Public
Enterprise (acting on behalf of the FGN). The acquisition plan includes the purchase of spare parts
and refurbishment of existing units in the short terms, and plans for expansion in the medium term.
2.6
Technical Solutions Adopted and Alternatives Considered
2.6.1 The solution adopted for this program is defined by a strong pipeline of IPPs to be considered
for PRGs by the Bank, on a fast-tracked basis. Alternative solutions were considered for this Program
and rejected for the reasons summarized in Table 2.2.
Alternative
Absence of PRGs
Super L/C
Alternative
design
2.7
Table 2.2
Program Alternatives and Reasons for Rejection
Description
Reasons for Rejection
No PRGs are provided for the  Potential investors would not be willing to take political
IPPs
risk existing in Nigeria
 The FGN is not willing to provide sovereign guarantees
to private investors, as it would be a contingent liability
on the Government
 IPPs would hardly, if at all, reach financial close
Provide a super L/C
comprising of co-guarantees
 Obstacle in elaborating an appropriate joint legal
from various DFIs involved in
framework for the instrument.
Nigeria’s power sector
Provide a PRG for each IPP
 Lack of responsiveness due to long processing delays vs.
rather than a series of PRGs as
the urgent need to provide PRGs for IPPs to reach
part of a larger program
financial close
 Not optimal in terms of use of internal resources
Program Type
2.7.1 The proposed program will be implemented as a standalone operation and will use the ADF
Partial Risk Guarantee and ADF Loan instruments.
2.8
Program Cost and Financing Arrangements
2.8.1 The first tranche of the Program will consist of UA 30 million from the ADF 12 PBA, resulting
in a PRG having a total face value amount of UA 120 million (approximately equivalent to USD 180
million), as a result of the leverage factor of the ADF PRG instrument. Indeed, the ADF PRG has a
four time multiplier effect allowing only 25% of the face value of the guarantee to be deducted from
the country’s PBA. The Program also includes an ADF loan amounting to UA 2 million to provide
technical assistance support to NBET and NERC. In line with the Bank Group's Policy on Eligible
Expenditures and in view of the country’s strong commitment to the power sector, it is recommended
that the Board approves 100% financing of the total cost of Component 2 of the Program.
2.8.2 Fees associated with each PRG issued include: a guarantee fee of 75 basis points per annum
on the full face value of the PRG payable to the Fund; a standby-fee of 50 basis points charged per
annum on the face value of the undrawn guarantee amount; a one-time front-end fee in an amount
equal to up to a maximum of 100 basis points of the full face value of the PRG will be charged by the
Fund to recover development and appraisal costs; as well as, other fees involving legal or out of
pocket expenses incurred by the Bank Group during initiation, appraisal and underwriting process of
a guarantee. In addition, there will be fees payable to the L/C Issuing Bank for providing the L/C. It
is anticipated that all PRGs and L/C-related fees will be payable by the L/C beneficiaries, i.e. the
7
specific IPPs to benefit from the PRGs. It should be noted that all the IPPs included in the pipeline
have indicated that they are willing to pay the fees and this will be firmed up during the negotiations
of the guarantee agreement. The ADF loan will have the standard ADF loan terms for blend member
countries such as Nigeria as indicated in the Project Information Sheet.
2.9
Program’s Target Area and Development Impact
2.9.1 With all IPPs supplying the national grid, the Program is expected to contribute to an improved
electricity access, from the current 41% to approximately 50% by 2016, for household, commercial
and industrial customers throughout the country. Access to modern, reliable and affordable energy is
fundamental to poverty reduction and sustainable development. Energy access impacts on many
aspects of people’s well-being and livelihoods, without which they are constrained to endure low
standards of living and difficult prospects to overcome poverty.
2.9.2 Currently, only 41% of Nigeria’s total population has access to public electricity supply, with
rural areas suffering the most from electricity deprivation. Even connected households suffer from an
erratic electricity supply. Only 25% of households use grid electricity as main source of lighting
(compared to 64% using kerosene). While over 80% of Nigerians have access to a radio and 64% to
mobile phones, 95% of the population does not have access to personal computers and internet. This
is partly explained because of the limited and unreliable power supply. It is expected that the dominant
use of electricity will be for lighting, followed by operating information and communication
technology (ICT) devices. This will in turn improve the welfare of households as well as provide
additional income-generation opportunities.
2.10
Participatory Approach
2.10.1 During the preparation of the Program, the Bank held extensive consultations with the main
power sector stakeholders, including the Federal Ministry of Finance, the Federal Ministry of Power,
NBET, NERC, TCN, as well as donors active in the sector, including the World Bank, USAID, and
finally the sponsors of the IPPs and their financial advisors.
2.10.2 For Greenfield IPPs, consultations have taken place with representatives from the local
administration, the affected communities, and civil society as part of the elaboration and validation
of the ESIA and RAP documents. Consultations with local communities reached a wide segment of
the population in the Program areas and took the form of formal and informal meetings, focus group
discussions, and in-depth interviews. Information related to the Program was discussed and various
stakeholders were encouraged to voice their concerns and opinions. Feedback obtained from the
stakeholders was documented, and all issues and suggestions raised were recorded. The extent of
consultations and issues raised will be assessed during the due diligence process of each transaction.
Greenfield IPP transactions will follow the disclosure process of the Bank in accordance with the
Environmental and Social Procedures for Private Sector Operations prior to presentation to Board
approval on LOTB.
2.11
Bank Group Experience and Lessons Reflected in Program Design
2.11.1 The Bank’s experience in Nigeria has led to some key lessons learnt, principally relating to
the FGN’s weaknesses in implementation capacity and lack of consistency with policy and plans. The
need for coherent power sector planning is being addressed by the FGN, with a strong commitment
to see the reform program go through. At the Program level, due attention needs to be given to
capacity assessment of NBET and other main institutions in the sector, especially in the areas that
would be critical to the Fund e.g. environmental assessment; procurement etc. In this regard, and in
addition to the ongoing Bank financed Economic and Power Sector Reform Program and Capacity
8
Building for PPP Infrastructure Projects operations, the project team has identified the capacity
building needs of the key institutions, NBET and NERC, for the success of the power sector reform
and secured some funding to fill the identified gaps (Component 2). Another main lessons learnt from
the Bank’s past interventions in Nigeria is the need to align it with the country’s needs. As such, the
decision to take a programmatic approach for this operation is based on the feedback received from
the NBET and FGN that a timesaving and flexible mechanism for the delivery of the PRGs would be
required in order to bring on board the IPPs as swiftly as possible.
2.11.2 The Project Team also integrated lessons learnt from the Bank’s first PRG operation in Kenya
in favor of the Lake Turkana Wind Power Project (LTWP) and other sister institutions, notably the
World Bank Group institutions. During the presentation of the LTWP, the Board suggested that for
projects for which the Bank is also financing the IPP from the private sector window, the approval
process of the PRG should be fast-tracked and one Project Appraisal Report (PAR) should be
submitted to the Board to the extent possible. In this Program, for the IPPs that are being considered
for private sector window financing, the same PAR will be submitted for Board consideration once
the Program has been approved. The International Bank for Reconstruction and Development (IBRD)
and International Development Association (IDA) offer PRGs that cover traditional political risks
and breach of contract on the part of government. The Multilateral Investment Guarantee Association
(MIGA) offers political risk insurance products covering mainly foreign investors’ equity, quasiequity, and non-equity direct investments for any combination of the following political risks: (i)
transfer restriction, (ii) expropriation, (iii) war and civil disturbance, and (iv) breach of contract. In
addition, MIGA now also has the authority to cover non-payment of direct financial obligations of
sovereign and sub-sovereign entities. The PRG Strategic Framework and Operational Guidelines
highlighted lessons from the IDA experience which, notwithstanding certain operational and
institutional differences between the WB and ADB, have been considered in the design of the ADF
PRG product. Those lessons are essentially that a PRG operation requires an enabling policy
framework; an implementation approach that rests on mainstream business processes and mobilizes
specialist skills; clear institutional assignments within the organization, beyond the pilot stage;
sufficient levels of leverage to make the instrument attractive; and an aggressive marketing to private
investors and governments.
2.12
Key Performance Indicators
2.12.1 The impact indicator will be the electricity access rate, which is expected to grow from the
current 41% to 50% by 2016. The key outcome indicators will be the maximum electricity demand
supplied to the national grid in MW, which is expected to grow from 5,500 to 8,000 MW by 2016.
2.12.2 From an outputs perspective, the Program will result in additional generation capacity in 1,380
MW provided by the 4 IPPs being supported under this program, as well as the trainings provided to
NBET and NERC staff that encourages gender balance.
3
PROGRAM FEASIBILITY
3.1
Financial and Economic Performance
3.1.1 In order to offer the best indication of the Program’s viability and profitability, the Program’s
financial and economic analysis focused on the IPPs that had already developed a preliminary
financial model. These IPPs, Okija, Ikot Abasi and Ughelli can be considered as frontrunners in terms
of readiness and in regards to fulfilling the Program’s aforementioned criteria for accessing the PRG.
Yellowstone IPP has already appointed its advisors (technical, legal, environmental, etc.) to prepare
the project documents, but it is yet to appoint a financial advisor who will essentially be in charge of
building a project information memorandum and a financial model.
9
3.1.2 The Economic Analysis is built on the assumption of applicability of the Multi-Year Tariff
Order (MYTO) II, which provides a 15 year tariff path for the Nigerian power sector. The PPAs to
be executed between the IPPs and the NBET would be in fact based on terms and conditions,
including tariffs, approved by the sector regulator, Nigerian Electricity Regulatory Commission
(NERC), in its MYTO II methodology.
3.1.3 The table below provides a summary of the main financial indicators from the financial and
economic analysis conducted for the selected pipeline projects.
Analysis
Financial Analysis
Okija IPP
Ikot Abasi IPP
Ughelli
Economic Analysis
Table 3.1
Key Financial and Economic Performance Indicators
NPV (USD million)
IRR (%)
62.2
83.0
15.3
22%
21%
16%
1,929
34%
N .B. Detailed calculations and assumptions are given in Annex B7
3.1.4 The detailed calculations of the financial and economic analysis as well as sensitivity tests are
provided in Annex B7.
3.2
Environnemental and Social Impact
3.2.1 The Program is classified as Category 4 according to the Bank’s Environmental and Social
Assessment Procedures (ESAP).
3.2.2 The Bank is supporting NBET in setting up an Environmental and Social Management System
designed to systematize the identification and management of environmental and social risks
associated with the IPPs and to liaise with the Federal Environmental Protection Agency.
3.2.3 The environmental and social due diligence status of the IPPs is the following:
 For Greenfield IPPs: The Environmental and Social Assessments (ESIA) of all Greenfield
IPPs listed above have been validated by the Federal Environmental Protection Agency,
although the Bank still has to receive the supportive documentation in that regard. The Bank
is currently reviewing the ESIAs for Okija and Ikot Abasi IPPs. The relevant environmental
and social (E&S) due diligence documentation pertaining to Yellowstone have yet to be
submitted by the sponsors to the Bank.
 For Brownfield IPPs: Ughelli IPP is yet to conduct an environmental audit and elaborate an
environmental management plan, which will be required by the Bank as part of the due
diligence process pertaining to each transaction. Moreover, the sponsors will have to obtain
the required license from the Federal Environmental Protection Agency.
3.2.4 Upon receipt of the documentation described above, the Bank will review it against the
background of its E&S procedures for private sector operations. All IPPs will be required to have inhouse expertise for the environmental and social monitoring during the construction and operations
phases.
3.2.5 Environment: The energy produced would save Nigerians millions of dollars annually by
displacing the expensive standby generators currently being used by Nigerian households and
businesses. In addition, the Program will contribute to the national effort of meeting the rapidly
10
growing energy needs of present and future population, mostly through investment in largely
environment-friendly initiatives.
3.2.6 Climate Change: Natural gas has some advantages over other fossil fuel energy sources, such
as oil and coal. It is cleaner burning and has a lower carbon footprint. In this regard, the Program will
contribute minimally to Nigeria’s GHG emissions, and thus with limited climate change implications.
While most of the IPPs are starting with open cycle gas turbine technology, they have plans to move
to combined cycle technology in the medium to long run.
3.2.7 Gender: By supporting IPPs supplying the national grid, the Program is expected to contribute
to an improved electricity access for Nigeria’s population as a whole, out of whom 80.2 million (49%)
are women. These include female heads of households, who represent 15% of the 30 million
households living in Nigeria and considered to be financially vulnerable.1 As primary responsible for
household chores and child-rearing activities, women in Nigeria bear the brunt of dependency on
biomass and lack of access to clean and modern energy sources. Moreover, lighting facilitates the
overall efficiency of cooking and childrearing activities.
3.2.8 Grid electricity access contributes in freeing women’s time for other activities, such as
income-generation and education opportunities. In recent years, informal household businesses have
become the main source of income in Nigeria over subsistence farming and informal employment,
where women represent the majority of the labor force. Women also have become more prominent
in formal enterprises, where they run one in every five registered business.2 Electricity access will
improve the operational efficiency of these businesses and significantly lower operational costs. This
in turn will lead to greater financial independence which is an essential dimension of women’s
empowerment.
3.2.9 By making ICT and media more accessible, the Program will indirectly have a positive
influence on attitudes about gender roles. The literature shows a positive correlation between access
to information and women’s empowerment. Women who have access to modern technologies can
more easily be informed about educational, economic and other opportunities and access to mass
media is often correlated with lower fertility rates. Finally, the Program’s second component’s
emphasis on female participation will support the career growth of women within key institution’s in
Nigeria’s power sector.
3.2.10 Social: Connecting homes to the grid will considerably and immediately improve the welfare
of beneficiary households. Grid access will extend the effective working day, which in turn allows
for more productive and leisurely activities (e.g. study time for children, listening to the radio and
watching TV). In addition, electricity access will improve the quality of public services, in particular
through the use of databases and computerized services to the benefit of households. With regards to
vulnerable households, they benefit from a lifeline tariff and the government is currently looking at
additional measures to support these customers.
3.2.11 The Program will support income generation activities as well as private sector development,
particularly for household businesses, which are very common in Nigeria. According to the 2011
General Household Survey, 77% of urban and 62% of rural households in Nigeria have someone
operating a business. Grid electricity will lower the operational costs of these businesses as well as
standard enterprises, most of which currently rely on stand-alone diesel generators or batteries. In
addition, the Program will contribute to the direct creation of temporary and permanent jobs for
construction and operation activities as well as boost indirect employment (suppliers, contractors,
catering services).
1
2
National Bureau of Statistics 2011, Men and Women in Nigeria
National Bureau of Statistics 2011, Households Enterprises in Nigeria
11
3.2.12 Involuntary Resettlement: It is possible that Greenfield IPPs, as they involve the need for
land acquisition and the construction of associated facilities (transmission lines and gas and/or water
pipelines) generate involuntary economic or physical resettlement. This will be identified during the
due diligence process for each transaction. Each IPP presented on LOTB will have to comply with
the Bank’s Policy on Involuntary Resettlement (2003).
3.2.13 A detailed environmental and social analysis is provided in Annex B8.
4
PROGRAM IMPLEMENTATION
4.1
Implementation Arrangements
4.1.1 The purpose of the Program is to provide comfort to the private sector investors and lenders
that the FGN, through NBET, will respect its payment obligations under the Power Purchase
Agreements (PPAs) between the IPPs (selected to benefit the Program) and NBET. The FGN is
therefore the primary obligor for the PRGs under this Program. The Federal Ministry of Power
(FMoP) is the executing agency, while NBET is the implementing agency. NBET will assume
fiduciary responsibilities on behalf of NERC for the procurement and financial management of the
capacity building component benefiting NERC.
4.1.2 NBET, a FGN public entity, was incorporated on July 29, 2010, in line with the "Roadmap to
Power Sector Reform" and in fulfilment of the requirements of Electric Power Sector Reform Act
(EPSRA 2005) for a "trading licensee holding a bulk purchase and resale license to engage in the
purchase and resale of electrical power and ancillary services from independent power producers and
from the successor generation companies". Despite the fact that NBET does not have past experience
in managing donor funded projects, its Board of Directors is made of eight credible Nigerians with
various experiences at national and international levels and is chaired by the Honorable Coordinating
Minister of the Economy and Finance. NBET is mandated to negotiate and implement PPAs with
IPPs on behalf of the DisCos that are backed by credit enhancement mechanisms, such as PRGs. The
implementation arrangements are detailed in Annex B3.
4.1.3 Procurement: The Bank Group’s “Rules and Procedures for Procurement of Goods and
Works”, and “Rules and Procedures for the Use of Consultants” (both dated May 2008 and revised
July 2012) apply to the Program in accordance with Article 1.2 and its charter to "ensure that the
proceeds of any loan made or guaranteed by it are used only for the purposes for which the loan was
granted, with due attention to considerations of economy and efficiency”. Following the Rules 3.16,
if the Bank guarantees the repayment of a loan made by another lender, the goods and works financed
by the said loan shall be procured with due attention to economy and with procedures that meet the
four principles of procurement. For the PRG-guaranteed L/C, the Bank will establish and approve the
criteria that will be used for the selection of the L/C Issuing Bank before the PRG proposal for a
specific IPP is submitted to the Board. In accordance with the PRG Operational Guidelines, due
attention will be focused on the economy, efficiency, appropriate use of funds and competition.
4.1.4 All procurement to be carried out under the second component (B) for capacity building shall
be in accordance with the Bank’s Rules. NBET will be responsible for the procurement activities
under that component. NBET is a newly established company, but an established procurement unit,
which conducts its activities, based on the national procurement procedures. The risk assessment of
NBET’s ability to implement procurement arrangements under this project is rated medium. To
mitigate this risk, a procurement specialist knowledgeable in Bank procedures will be recruited to
reinforce NBET’s procurement unit. The procurement arrangements for the Program are detailed in
Annex B5.
12
4.1.5 Financial Management: The FMoP, being the Executing Agency, will, through the NBET,
take overall responsibility for the Financial Management (FM) of the PRG program and ensure that
the IPPs are regularly paid for energy produced and supplied to the market. To ensure the proper
functioning of the NBET Finance Department, qualified professional accountants are already on
board. The NBET Finance Department is headed by its Chief Finance Officer, a seasoned professional
accountant with over two decades experience and assisted by an Assistant General Manager,
Corporate Finance and a Controller of Finance who are both professional accountants. There is an
internal audit unit headed also by a Professional Accountant. The Financial Management Team is
also assisted by six additional professional staff. In spite of the current challenges in the Nigeria
Public Financial Management (PFM), a detailed review of NBET’s financial management
arrangements rated the existing FM system as adequate to satisfy the requirements of the Bank, with
the residual FM risk rated Low to Moderate.
4.1.6 The NBET current Finance Policy and Finance Operating Procedures Manuals were reviewed
and deemed adequate for purposes of managing project related disbursements and the accompanying
reporting requirements.. The Accounting Software in use is considered robust and capable of
generating all the financial reports within the framework of International Financial Reporting
Standards (IFRS) as required by law in Nigeria, and in conformity with expectations of the Bank.
4.1.7 The FGN has contributed to the capitalization of the NBET through capital supplementation
via budget appropriations of approximately USD 145 million from the 2013 budget; while an
additional USD 350 million was allocated to the NBET from the proceeds of the Eurobond to finance
infrastructure related programs; and finally NGN 50 billion being the proceeds of the sale of Egbin
Power plant (approximately USD 325million) was added to strengthen the company’s balance sheet.
In total, this amounts to approximately USD 820 million. Furthermore the NBET requested additional
financing buffers from the Discos, in the form of 3 month payment guarantees to mitigate against any
possible market shortfalls. The assessment thus concluded that NBET’s current arrangements for
continuing solvency are sound.
4.1.8 There are no traditional financial management-related fiduciary issues with the PRG
component as there will be no procurement-related disbursements. Should the PRG be called, the
ADF would disburse to the relevant L/C bank and the Federal Government of Nigeria (FGN) would
be obligated to repay ADF in accordance with the Indemnity Agreement between FGN and ADF.
However, the NBET will have to produce bi-annually, interim unaudited financial reports covering
the component 2 of the Program (related to capacity building) as well as annual financial statements
to be audited in accordance with para 4.1.9 and submitted to the Bank for review within six months
of the end of the financial year audited.
4.1.9 Audit: In accordance with the Constitution of Nigeria (sections 85 and 125), the Office of the
Auditor General of the Federation (OAGF) is responsible for the audit of the financial transactions of
Federal Government projects. However, due to lack of adequate staffing as well as excessive work
load, the OAGF often allows project audits of this type to be conducted by qualified private
independent external auditors, selected in terms of TORs acceptable to the financiers (in this case the
Bank), and in conjunction with the OAGF. Currently NBET‘s external auditors are Price Waterhouse
Coopers (PWC). This is one of the top four audit firms in Nigeria and in the World, and is acceptable
to the Bank. Consideration will be made to extending the PWC contract to cover the specific
requirements of the project. To date, NBET being a new organization has only produced one audited
financial statement conducted in accordance with International Standards on Auditing (ISA). No
significant adverse issues were noted by the auditor.
13
4.1.10 The auditors’ report on the project, plus the NBET entity annual accounts, along with the
supporting management letters, will be submitted to the Bank within six months after the end of each
fiscal year audited.
Disbursement: The Program will have access to two disbursement methods for implementation of
the capacity building component: the Special Account and Direct Payment methods as prescribed in
the Bank’s Disbursement Handbook. NBET will open a USD and Naira denominated Special
Account in commercial banks acceptable to the Bank. For the PRG component: in the case of a call,
the procedures for processing a claim under the PRG are provided in the Strategic Framework and
Operational Guidelines for the ADF PRG.
4.2
Program Monitoring and Evaluation
4.2.1 NBET will be responsible for the overall monitoring of the Program outcomes. NBET will
benefit from monitoring and evaluation training under the capacity building component. IPPs will be
expected to produce data on the Program outcomes and results indicators in regular progress reports.
The Bank will monitor and supervise through the submission of reports that will be required by the
IPPs under the Project Agreement with each IPP and submission of relevant reports by NBET as
required under the Bank‘s Indemnity Agreement with the FGN as well as through regular field visits
until the expiry of each PRG.
4.2.2 Since Nigeria hosts a fully equipped country office, the sector experts in the office will
maintain a permanent dialogue with NBET, the IPPs and the FGN. This will be supplemented by
rigorous supervision missions from the office and from the headquarters. Most projects in Nigeria
are supervised more than twice a year.
4.3
Governance
4.3.1 The Government is vigorously pursuing the implementation of its structural reforms, with
focus on priority sectors that include infrastructure (power, roads and rail), banking and finance,
petroleum, and logistics (seaports and airports). The power sector reform has been concluded and the
investors have been legally handed over the assets. The government is in the process of concluding
all outstanding labour related payments.
4.3.2 Economic governance and institutional capacity were weak at the federal level which justified
the ongoing reforms in the sector. Results of the 2012 Public Expenditure Financial Accountability
(PEFA) assessment (still in draft) show continuing challenges with transparency and accountability.
The current weaknesses in the country’s PFM system have more to do with the underutilization of
the accountability and control mechanisms that have been in place for many decades than deficiencies
in the legal framework. The FGN has nonetheless successfully commenced a number of initiatives
to address its existing weaknesses.
4.3.3 In the power sector, three governance-related challenges affect the efficiencies in the sector:
First, due in part to distorted electricity tariff system, the financial performance of the power
companies remains poor. Second, the weak institutional and administrative framework is not
conducive to the emergence of a level playing ground attractive to investors. Third, NERC’s capacity
to adequately enforce proper electricity pricing and tariff policies remains uncertain although the
passage of the EPSR Act 2005 and NEPP 2001, which enabled the unbundling, reform and
privatization of the Power Holding Company of Nigeria (PHCN), strengthened the performance and
accountability in the sector. (NERC regulates and implements the tariff framework for the sector,
Feed In Tariffs (FITs) for renewable energy, consumer assistance fund and subsidy payments).
14
4.3.4 Despite these challenges, the outlook for the sector and the country remains positive and
promising in the medium term. This would nonetheless depend on the extent to which policymakers
are consistent in the implementation of the reforms that would help build on the success recorded so
far. Thus, maintaining the momentum in implementing the power sector reform, continuing
implementation of the diverse infrastructure development and maintenance programs, and promoting
private sector activities through active support will greatly contribute to increased power supply and
sustained growth. The participation of private sponsors in implementation of this proposed PRG
Program as well as the supervision of commercial lenders provides additional comfort.
4.4
Sustainability
4.4.1 The proposed Program is critical to support the ongoing privatization reform which aims to
increase power generation in Nigeria through IPPs and is technically, economically, and financially
viable. The importance of the Program to the sector is understood in the context of the privatization
of the sector and meeting government targets to fill the huge power generation gap in the country.
The prohibitive economic and financial cost to Nigeria from the lack of reliable power supply is an
important mitigation measure for sustainability risk. In fact, the financial cost of electricity demand
that is un-served is estimated to be between N60 to N80/kW, with un-served customers having to rely
on expensive diesel, petrol and LPFO generation. The economic cost is even greater, considering the
loss of output and productivity, the high greenhouse gas emissions, etc. The additional generating
capacity that will be provided by the IPPs to be supported under this Program is therefore necessary
to provide much needed generation to sustain economic growth.
4.4.2 The sector’s well-designed regulatory structure and the so far successful reform, support its
sustainability. The electricity sector reform program in Nigeria is designed to be financially selfsustainable through sound regulatory policies that are applied to the terms of power purchase
agreements between IPPs and NBET; as well as through the implementation and programmed
reviews, by NERC, of the MYTO II. MYTO II is based on the sector’s revenue requirements and is
aimed at being cost effective and providing financial incentives for needed private investments in the
industry. Finally, it is expected that once there is sufficient comfort in the market, NBET will hand
over PPA obligations to individual DisCos and there will be direct bilateral contract between the IPPs
and the DisCos.
4.5
Risk Management
4.5.1 The ADF PRG will cover risks of non-payment by NBET of amounts due to the IPPs under
the PPA. In this regard, the PRG will backstop the contractual obligations of the FGN owned entity,
NBET, for power delivered by the private investors. Failure by FGN to honor the counter- indemnity
will trigger the Bank Group’s sanctions policy, which mitigates the risk of the Government not
honoring its obligations to the L/C Bank.
4.5.2 NBET may however find itself in a position where it is unable to honor its contractual
obligations to an IPP as stipulated in the PPA, which would trigger a political event that could in turn
have the IPP draw on the L/C and ultimately on the PRG being triggered (if NBET defaults on its
obligation). The major risks involved in this program and proposed mitigation measures are discussed
in Table 4.1 below.
Table 4.1 – Risks and Mitigation Measures
Risk
Description
Mitigation
Risks that would trigger a call on the PRG
1
Poor financial standing of NBET
due to financial mismanagement
and inadequate working capital
15
NBET is being initially capitalised by FGN with
approximately USD 820 million via three channels (i)
a capital supplement from 2013 FGN budget
which leads to the Partial Risk
Guarantee (PRG) being called.
2
Risk that payments are made by
ADF to L/C bank following trigger
of PRG without the ability to
recover funds from NBET
3
Risk that FGN fails to meet its
obligation to the ADF Group under
the PRG
4
Billing and collection risks due to
inability of distribution companies
to collect revenues from end-users
and lack of appropriate metering
systems.
5
Termination or breach of contract
due to political force majeure
appropriations of USD 145 million (ii) USD 350
million from FGN’s Eurobond issuance and (iii) USD
325 million from the Egbin Power Plant sale escrow
account. In addition NBET will benefit from liquidity
enhancement of approximately (i) USD 150 million on
a monthly basis from distribution company
receivables and (ii) USD 450 million from guarantees
covering 3 months of power purchases from
distribution companies.
FGN will provide a counter indemnity to the ADF
under which it agrees to reimburse the ADF on
demand for any payments made under the PRG.
Furthermore, under the reimbursement and credit
agreement, there will be a defined reimbursement
period, whereby the Fund will closely monitor
NBET’s ability to reimburse the L/C.
A default of FGN under the terms of the PRG will have
cross-default implications for all FGN’s obligations
with the AFDB Group. Debt sustainability analysis
carried out in 2012 by the Nigerian authorities and the
IMF/World Bank indicates that Nigeria remains at low
risk of debt distress. The authorities are adopting
measures to reduce the degree of rising domestic
indebtedness through measures such as the use of a
sinking fund and increased issuance of medium to
long-term external debt.
Distribution companies have been privatised which
should give them a greater economic incentive to
collect revenues due to them and install appropriate
metering systems. NBET will have the contractual
right to partially curtail or withhold energy deliveries
to distribution companies in the event of nonpayment
which should incentivize distribution companies to
pay their bills.
Furthermore, NBET will benefit from liquidity
enhancement of approximately (i) USD 150 million on
a monthly basis from distribution company
receivables and (ii) USD 450 million from guarantees
covering 3 months of power purchases from
distribution companies.
The Bank is working closely with MIGA, who is
considering providing a guarantee for the IPPs in the
pipeline to cover that risk.
Risks that would not trigger a call on the PRG
1
Gas supply risk for gas-fired power
generating plants due to security
concerns and pipeline vandalism in
the Niger Delta region, or inability
of established gas producers to
supply gas.
2
Risk that the Transmission
Company of Nigeria (TCN) is not
able to evacuate the power
generated by the IPPs to the DisCos.
16
Such risk would not trigger a call on the PRG,
however, security of gas supply from the Niger Delta
remains one of the priorities of the FGN which has
renewed efforts to end militancy in the Delta region
through its support for more inclusive employment
opportunities, increased dialogue with the Niger Delta
activists, more equitable distribution of hydrocarbon
resources and enhanced security operations.
Independent power producers are exploring
alternative gas supplies to those provided by
established gas producers. Gas Supply Agreements
will include liquidated damages provisions.
Such risk would not trigger a call on the PRG,
however, greenfield IPPs would enter into agreements
with the TCN to construct transmission lines and
substations on a Build Operate Transfer basis to
evacuate power. TCN is also in discussions with FGN
and NERC to improve its financial capability to
3
4
4.6
Risk of Market Operator being
unable to fulfill its obligations due
to its inability to collect
transmission and other ancillary
charges
from
distribution
companies
Risk that IPPs generate involuntary
economic or physical resettlement.
undertake the capital expenditure required to evacuate
power.
Such risk would not trigger a call on the PRG,
however, the Market Operator is empowered by the
Market Rules to collect a security cover (e.g. .3 billing
periods worth of charges in the transition phase) from
DisCos and disconnect supply if the payments due are
not made.
The Bank’s due diligence process for each transaction
will identify such issues. The capacity building
trainings on environmental risks assessment will
enable NBET to monitor any such eventuality.
Knowledge Building
4.6.1 The Program will have a catalytic replication effect, which will come from: (i) significant
leveraging of resources through ADF’s PRG instrument; (ii) possibility of replicating the Program;
and (iii) learning and demonstration, as described below:
a) Catalytic Effect: ADF resources, through this PRG, will crowd in significant amounts
of private sector and other financing.
b) Replication Effect: the Program can be replicated in Nigeria and/or other countries in
African, given the magnitude of the power sector needs in the region
c) Learning and Demonstration: In addition to the catalytic effect of the Program, the
experience gained from processing it has allowed for capacity building and knowledge
creation which will be leveraged within the Bank Group and the broader development
community concerning the use of guarantee instruments to mobilize private sector
financing.
5
LEGAL INSTRUMENTS AND AUTHORITY
5.1
Legal Instrument
5.1.1 The legal instruments for this Program will include:
a) Individual Guarantee Agreements between ADF and each L/C Issuing Bank which sets
out the terms and conditions under which ADF would reimburse the L/C Bank – an
indicative term sheet is provided in Appendix V;
b) Individual or single Indemnity Agreement(s) between ADF and FGN under which FGN
undertakes to indemnify ADF on demand for any payments made by ADF under each
Guarantee Agreement;
c) Individual Project Agreements between ADF and each beneficiary IPP pursuant to which
the IPP agrees to provide relevant project information, comply with applicable laws,
including environmental laws, refrain from making amendments to the underlying project
documents without ADF’s consent, and make certain warranties, representations and
undertakings;
d) Individual Standby Letters of Credit issued by the respective L/C Issuing Banks at the
request of NBET in favor of the beneficiary IPPs; and
e) Individual Reimbursement and Credit Agreements between NBET, FGN and the
respective L/C Issuing Bank under which NBET / FGN undertakes to reimburse the L/C
Bank for amounts drawn under the L/C.
f) ADF loan agreement to the Federal Republic of Nigeria;
5.2
Conditions for Bank Intervention
A.
Condition Precedent to Effectiveness of each Guarantee Agreement
17
5.2.1 The Guarantee Agreement shall become effective upon fulfilment of the following conditions,
as well as other conditions to be determined on a case-by-case basis for the specific IPP transaction:
(i) Execution, delivery and effectiveness of the following agreements:
a. the Indemnity Agreement between ADF and FGN under which FGN undertakes to indemnify
ADF on demand for any payments made by ADF under the Guarantee Agreement;
b. the Guarantee Agreement between ADF and the L/C Issuing Bank, which embodies the terms
and conditions of the ADF PRG;
c. the Project Agreement between the ADF and the IPP pursuant to which the IPP agrees to
provide relevant project information, comply with applicable laws, including environmental
laws, refrain from making amendments to the underlying project documents without ADF’s
consent, and make certain warranties, representations and undertakings;
d. an undertaking between ADF and IPP relating to payment of the PRG and L/C-related fees;
e. the Reimbursement and Credit Agreement between NBET, FGN and the L/C Issuing Bank
under which NBET / FGN undertakes to reimburse the L/C Issuing Bank for amounts drawn
under the L/C, together with accrued interest;
f. the Standby Letter of Credit from the L/C Bank in favor of the IPP; and
g. the PPA;
(ii) Confirmation from an authorized officer of the L/C Issuing Bank of the satisfaction of all
conditions precedent to the issuance of the guaranteed L/C, other than satisfaction of any
condition precedent therein requiring the effectiveness of the Guarantee Agreement.
(iii)Issuance of original legal opinions to ADF from: (a) the Attorney General of Nigeria in agreed
form relating to the agreements to which it is a party; (b) counsel to NBET relating to the
agreements to which it is a party; and (c) counsel to the IPP relating to the agreements to which
it is a party; and (d) counsel to the L/C Issuing Bank relating to the agreements to which it is a
party.
(iv) Delivery of all environmental assessments and documentation required by ADF, including
evidence that all project affected persons have been compensated or resettled in accordance with
applicable ADF policies, determination by ADF that all relevant parties are in compliance with
applicable ADF requirements, and receipt of all relevant Nigerian environmental approvals.
(v) Payment in full by the IPP (the L/C beneficiary) of all fees then payable.
(vi) Other certificates and evidence taking into account the nature of the financing.
B.
Condition Precedent to Entry into Force of the Loan Agreement
5.2.2 The loan agreement for the capacity building component shall enter into force subject to
fulfilment by the Borrower of the provisions of Section 12.01 of the General Conditions Applicable
to the African Development Fund Loan Agreements and Guarantee Agreement (Sovereign Entities).
18
C.
Conditions Precedent to First Disbursement of the Loan
5.2.3 The obligation of the Fund to make the first disbursement of the Loan for the capacity building
component shall be conditional upon the entry into force of the Loan Agreement and the fulfillment
by the Borrower of the following conditions:
(i) Entry into force of the loan agreement;
(ii) Evidence of having opened a USD special account and a Naira special account with a bank(s)
acceptable to the Fund for the deposit of the proceeds of the Loan.
5.3
Compliance with Bank Policies
5.3.1 This Program complies with all applicable Bank policies, in particular with the Strategic
Framework and Operational Guidelines for the African Development Fund Partial Risk Guarantee
Instrument.
6
RECOMMENDATION
Management recommends that the Board of Directors approve: (i) the proposed ADF Partial Risk
Guarantee of UA 30 million to the Federal Government of Nigeria for the proposed PRG having a
total face value amount of UA 120 million (approximately USD 180 million); (ii) an increase of the
commitment capacity of the Fund by seventy-five per cent (75%) of the face value of each guarantee
extended in accordance with the Strategic Framework and Operational Guidelines, and an increase in
the commitment capacity of the Fund to take account of currency fluctuations between the amount of
the Fund’s commitment currency of the PRG (UA) and the amount of the currency of denomination
of each PRG; and (iii) the proposed ADF Loan of UA 2 million to the Federal Government of Nigeria,
subject to the conditions stipulated in this report. The Board is also invited to note that Management
anticipates returning to the Board for the approval of further amounts for additional tranches of the
Program from ADF 13 resources and/or other funds as requested by the FGN and available.
19
Appendix I: Nigeria’s Comparative Socio-Economic Indicators
Indicators
Unit
2000
2008
2009
2010
2011
2012
2013 (e)
Million US $
33,396
270
46,386
46,386
6.3
3.8
20.4
9.5
10.9
32.4
176,279
1,170
211,590
94,561
6.0
3.4
8.2
2.4
5.7
36.1
179,206
1,160
175,097
101,141
7.0
4.3
11.6
2.9
8.7
36.9
185,355
1,170
228,351
109,210
8.0
5.3
11.6
5.0
6.6
28.9
194,965
1,200
243,849
117,324
7.4
4.8
10.3
3.5
6.8
25.7
...
...
287,803
125,085
6.6
4.0
9.2
2.4
6.8
25.7
...
...
337,056
133,511
6.7
4.1
8.8
2.0
6.8
24.6
6.9
101.7
48.1
22.0
12.0
118.5
53.8
35.6
12.0
148.9
20.0
41.1
13.6
150.3
4.2
32.5
10.9
154.7
8.1
32.0
12.0
156.8
...
...
9.7
...
...
...
42.1
36.2
5.9
26.9
30.6
-3.8
18.1
27.9
-9.8
21.0
25.8
-4.8
27.3
27.5
-0.1
29.2
25.4
3.7
28.8
24.4
4.4
18.8
-21.4
24.4
5,786
12.5
8.3
-4.7
15.0
11.2
78,323
37.0
9.8
2.8
1.4
-16.4
53,164
30.4
10.7
6.6
29.1
9.9
4,094
1.8
6.1
-8.2
10.4
9.0
7,844
3.2
4.9
5.6
12.8
28.4
29,895
10.4
6.0
3.8
2.9
6.8
39,787
11.8
...
6.9
65.2
-1,994
174
1,310
0.7
2.1
2,551
1,290
8,249
0.9
2.3
4,002
1,657
8,650
0.6
2.3
1,310
2,062
6,099
0.3
2.4
4,375
1,813
8,915
0.5
2.3
...
...
...
0.5
2.1
...
...
...
National Accounts
GNI at Current Prices
GNI per Capita
GDP at Current Prices
GDP at 2000 Constant prices
Real GDP Growth Rate
Real per Capita GDP Growth Rate
Gross Domestic Investment
Public Investment
Private Investment
Gross National Savings
US$
Million US $
Million US $
%
%
% GDP
% GDP
% GDP
% GDP
Prices and Money
Inflation (CPI)
Exchange Rate (Annual Average)
Monetary Growth (M2)
Money and Quasi Money as % of GDP
%
local currency/US$
%
%
Government Finance
Total Revenue and Grants
Total Expenditure and Net Lending
Overall Deficit (-) / Surplus (+)
% GDP
% GDP
% GDP
External Sector
Exports Volume Growth (Goods)
Imports Volume Growth (Goods)
Terms of Trade Growth
Current Account Balance
Current Account Balance
External Reserves
%
%
%
Million US $
% GDP
months of imports
Debt and Financial Flows
Debt Service
External Debt
Net Total Financial Flows
Net Official Development Assistance
Net Foreign Direct Investment
% exports
% GDP
Million US $
Million US $
Million US $
Inflation (CPI),
2000-2013
%
Real GDP Growth Rate, 2000-2013
25.0
Current Account Balance as % of GDP,
2000-2013
20
20.0
50.0
40.0
15
30.0
15.0
20.0
10
10.0
10.0
5.0
-10.0
0
-20.0
2,013
2,012
2,011
2,010
2,009
2,008
2,007
2,006
Source : AfDB Statistics Department; IMF: World Economic Outlook, October 2012 and International Financial Statistics, October 2012;
AfDB Statistics Department: Development Data Portal Database, March 2013. United Nations: OECD, Reporting System Division.
Notes:
… Data Not Available
( e ) Estimations
2,005
2,004
2,003
2,002
2,001
2,000
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0.0
0.0
5
Last Update: May 2013
Appendix II: ADB Portfolio in Nigeria
List of projects (loans and grants) by Sector, including those that are not yet disbursement effective, September 2013:
Sub-Sector
AGRICULTURE
National Fadama Development Project (NFDP)
Number PP/ PPP
of
Projects
DO
PPR
Net Amount
Share of Average Amount
approved (UA) Portfolio Age
disbursed (UA)
(years)
4
96,900,000
Community based - Agricultural & Rural Development Project
(CBARDP)
Support to the National Program for Food Security (SNPFS)
CGIAR: SUPPORT TO AGRICULTURAL RESEARCH FOR
DEVELOPMENT OF STRATEGIC CROPS IN AFRICA (SARDSC)
INFRASTRUCTURE
IP
Average Date
annual
approved
disburse
ment
Closing
Date
6.4
43,788,405
45.2%
7,372,474
7.6%
2.14
2.75
2.28
22,000,000
9.1
17,768,556
73.1%
1,762,535
8.0%
12/10/2003
12/30/2012
2.36
2.67
2.22
13,000,000
9.4
12,403,913
87.8%
1,218,295
9.4%
9/11/2003
12/31/2012
2.43
2.75
2.50
22,000,000
6.3
10,789,403
34.7%
1,217,231
5.5%
10/18/2006
12/31/2013
39,900,000.0
0.9
2,826,533
7.1%
3,174,413
8.0%
3/18/2009
12/31/2013
8
441,000,000
16%
Disburse- Average
ment
annual
rate
disbursement
(UA)
4.5
137,208,440
31.1%
33,811,232
7.7%
51,000,000
5.3
6,838,720
13.4%
1,294,004
2.5%
10/10/2007
12/31/2013
*
50,000,000
3.4
50,379
0.1%
14,877
0.0%
9/2/2009
4/30/2016
*
63,920,000
1.0
-
0.0%
-
0.0%
2/8/2012
12/31/2017
*
100,000,000
3.2
67,000,000
67.0%
20,724,576
20.7%
10/28/2009
12/31/2013
16,723,253
36.0%
2,302,654
6.5%
7/18/2007
12/31/2013
0.0%
3/13/2011
Rural Water Supply & Sanitation Sub-Programmes (RWSS)
PPP
URBAN WATER SUPPLY AND SANITATION PROJECT FOR
OYO AND TARABA STATES (UWSSP)
ZARIA WATER SUPPLY AND SANITATION PROJECT
(ZWSSP) - Loan Signed in July 2013
ECONOMIC AND POWER SECTOR REFORM PROGRAM
(EPSERP)
2.08
1.75
2.00
75%
Rural Access and Mobility Project (RAMP)
2.57
3.00
2.67
35,270,000
5.5
Capacity Building for PPP in Infrastructure Project
2.57
3.00
2.67
21,800,000
1.9
PPP
2.1
2.0
2.1
4,600,000.0
7.7
2,405,610.3
40.5%
240,689.9
5.2%
4/27/2005
12/30/2012
PPP
2.1
3.0
2.3
98,250,000.0
4.2
44,944,520.7
41.2%
9,747,022.6
9.9%
11/25/2008
12/31/2014
PPP
2.1
3.0
2.3
16,160,000.0
4.2
392,246.0
1.0%
39,365.1
0.2%
11/25/2008
12/31/2014
PPP
2.1
2.3
2.2
10,000,000.0
9/29/2004
12/30/2012
Capacity Building Programme for the Supervision of Aviation
Safety in West & Central Africa (COSCAP)
TRANSPORT FACILITATION PROGRAMME FOR THE
BAMENDA-MAMFE-ABAKALIKIENUGU
CORRIDOR - Nigeria (NCH&TFP)
TRANSPORT FACILITATION PROGRAMME FOR THE
BAMENDA-MAMFE-ABAKALIKIENUGU
CORRIDOR - ECOWAS (NCH&TFP)
MULTI SECTOR
1
ECOWAS Peace and Development Project (PADEP)
SOCIAL SECTOR
2
Skills Training and Vocational Education (STVEP)
SUPPORT TO NETWORK OF REGIONAL AFRICAN
INSTITUTIONS OF SCIENCE AND TECHNOLOGY (AUST &
2iE) PROJECT
ENVIRONMENT
Lake Chad Basin Sustainable Development Programme /
Programme de développement durable du Bassin du Lac
Tchad (PRODEBALT).
TOTAL PUBLIC SECTOR
10,000,000
37,000,000
PPP
6%
0.0%
-
8.3
7,873,460
78.7%
946,891
9.5%
8.3
7,873,459.8
78.7%
946,890.6
9.5%
5.7
16,180,788
43.7%
2,235,826
6.0%
2.08
3.00
2.25
30,000,000
7.5
12,403,913
36.2%
1,451,750
4.8%
7/27/2005
11/30/2013
2.2
3.0
2.4
7,000,000.0
3.8
3,776,874.6
43.1%
784,076.0
11.2%
3/18/2009
12/31/2013
2.3
3.0
2.4
5,240,000.0
12/12/2008
12/31/2015
1
16
2%
-
5,240,000
590,140,000
1%
100%
2.1
27,314
0.5%
1,078,659
20.6%
4.1
27,313.6
0.5%
1,078,659.1
20.6%
34.8%
45,445,081
7.7%
5.1
205,078,407
Legend:
IP = Implementation Progress
DO = Development Objectives
PPR = Project Performance Rating
PP = Problematic Project ; PPP = Potentially Problematic Project
APPENDIX III: Similar Projects in Nigeria
Project Title
WORLD BANK
GROUP’s
Nigeria Electricity and Gas
Improvement Project
P106172
Program Overview
The development objectives of the Electricity and Gas
Improvement Project for Nigeria is to: (i) improve the
availability and reliability of gas supply to increase power
generation in existing public sector power plants; and (ii)
improve the power network's capacity and efficiency to
transmit and distribute quality electricity to the consumers.
There are three components to the project: 1) risk mitigation
through a series of Partial Risk Guarantee (PRGs) in
support of gas supplies to increase power generation from
existing public sector power plants; 2) enhancement of
transmission and distribution infrastructure. This
component will reinforce of distribution networks to
increase electricity supply in selected cities including Kano,
Kaduna, Eko, Ikeja, Ibadan, Abuja, Benin, Port Harcourt,
Yola, Jos; and Enugu. 3) Technical advisory services.
Provision of logistical support and technical advisory
services required to sustain ongoing reforms undertaken by
the recipient to improve the performance of its power sector
including: a) design of gas infrastructure and transmission
and distribution systems needed to handle expected
increases in power supply; and b) formulation and
execution of community outreach activities.
Geographic
Location(s)
Start Date &
End Date
Total
Allocation
Financing
Mechanism
Focus
National
June 16, 2009
to December
31, 2017
$200 million
Specific
Investment
Loan
Transmission
and
Distribution
of Electricity
Appendix IV: Map of Project Area
GON
priorities in
the Power
Roadmap
Improve the
availability
and reliability
of gas supply
to
increase
power
generation in
existing
public sector
power plants;
and improve
the
power
networks
capacity and
efficiency to
transmit and
distribute
quality
electricity to
the
consumers.
Note: This map was produced by the Map Design Unit of the World Bank.
Appendix V: Indicative Term Sheet
AFRICAN DEVELOPMENT FUND
INDICATIVE TERMS AND CONDITIONS OF
AN ADF PARTIAL RISK GUARANTEE
This Summary Terms and Conditions does not constitute an offer or commitment to provide the
envisaged guarantee, and as such any commitment would be pursuant to internal approvals,
conclusion of due diligence and successful negotiation of definitive legal documentation. The
terms and conditions outlined below are not a comprehensive statement of all applicable terms
and conditions that would be contained in the definitive legal documentation for the guarantee
facility and the transaction contemplated herein, but are an indicative summary of the
proposed guarantee structure normally required by the African Development Fund (ADF) for
similar types of transactions.
ADF PARTIAL RISK GUARANTEE (ADF PRG)
PURPOSE:
The ADF PRG will backstop the failure by the L/C Applicant to
reimburse the L/C Bank amounts drawn by the L/C Beneficiary
under the L/C following the occurrence of a Guaranteed Event
(as defined below).
L/C APPLICANT:
Federal Republic of Nigeria (FGN)
GUARANTEED L/C:
Revolving Standby Letter of Credit (L/C) issued in favor of the
L/C Beneficiary by the L/C Bank at the request of Nigeria Bulk
Electricity Trader (NBET) and FGN to backstop NBET and
FGN payment obligations under a signed power purchase
agreement (PPA) entered into between NBET and an approved
Independent Power Producer (IPP). NBET and FGN obligations
include to reimburse the L/C Bank amounts drawn under the
L/C, up to a maximum amount equivalent to [TBD, will vary per
IPP], will be guaranteed by the ADF. Any amounts drawn by
the L/C Beneficiary that are reimbursed by NBET/FGN to the
L/C Bank within the L/C Reimbursement Period will be
reinstated as described below.
L/C BENEFICIARY:
An approved IPP
L/C BANK:
A commercial bank with an international long-term foreign
currency investment grade rating by one of Standard & Poor’s or
Moody’s Investors Services, acceptable to ADF, FGN/NBET
and the L/C Beneficiary, that is selected through a competitive
bidding process.
GUARANTEED EVENT: FGN/NBET’s failure to comply with its payment obligations
under the Reimbursement Agreement.
MAXIMUM L/C
AMOUNT:
[TBD]
CURRENCY:
[TBD]
L/C TERM:
The validity period of the L/C will be [TBD – will depend on
project life of each approved IPP], or as agreed with the L/C
Bank.
L/C FORM:
In a form satisfactory to ADF, FGN/NBET and the L/C
Beneficiary.
L/C BANK INTEREST:
An appropriate spread above [TBD -relevant base rate] to reflect
ADF risk, and acceptable to the L/C Beneficiary and
FGN/NBET, and agreed by ADF.
L/C REIMBURSEMENT
PERIOD:
Following a drawing on the L/C by the L/C Beneficiary, FGN /
NBET will be obligated to reimburse the L/C Bank the amount
drawn, plus accrued interest thereon, within [TBD] of the
drawdown (L/C Reimbursement Period) in accordance with
the terms of the reimbursement and credit agreement to be
entered into between the L/C Bank and the L/C Applicant
(Reimbursement Agreement).
If the L/C Applicant reimburses the L/C Bank before the expiry
of the L/C Reimbursement Period, the L/C will be reinstated by
the amount so reimbursed.
CALL ON ADF PRG:
PROVISIONAL
PAYMENTS:
If the amount remains unreimbursed following the expiry of the
L/C Reimbursement Period, the L/C Bank will have the right to
call on the ADF PRG for an amount equal to the amount drawn
under the L/C and not reimbursed by the L/C Applicant plus
accrued interest, if any, due. Any amount paid by ADF to the
L/C Bank under the PRG will be deducted from the ADF
Guaranteed Amount. Even if the FGN/NBET’s payment default
is remedied, following a payment under the ADF PRG, the
amounts paid by ADF will not be reinstated to the ADF
Guaranteed Amount.
In the event of a dispute between the L/C Beneficiary and the
L/C Applicant in connection with a Guaranteed Event, the L/C
can be drawn for provisional payments pending the settlement of
the dispute, provided that the L/C Beneficiary provides security
to FGN/NBET in the full amount of the provisional payment in
the event the final dispute settlement determines that
FGN/NBET had no liability or its liability was for less than the
amount of the provisional payment.
ADF GUARANTEED
AMOUNT:
[TBD – will depend on the amount allocated to the approved
IPP]
ADF PRG GUARANTEE
PERIOD:
[TBD – will depend on the project life of each approved IPP]
ADF PRG FEES:
Guarantee Fee: 0.75% per annum on the ADF Guaranteed
Amount, payable six monthly in advance, by the L/C Beneficiary
to ADF.
Front-End Fee: 1% of the ADF Guaranteed Amount payable by
the L/C Beneficiary to ADF prior to the effectiveness of the ADF
Guarantee Agreement.
Stand-By Fee: 0.50% per annum and will be charged on the face
value of undrawn portion of the Guaranteed Amount
External Legal Counsel Fees: In the amount agreed between
the external legal counsel, the L/C Beneficiary and ADF, and
payable by the L/C Beneficiary directly to external legal counsel.
L/C BANK FEES:
To be payable by the L/C Beneficiary to the L/C Bank and
determined through a competitive bidding process.