By Pinsent Masons | –
The US is to step up support for Nigeria in reforming the country’s energy sector and paving the way to speed up development of the electricity market as part of moves to attract investors.
Nigeria and the US have signed a memorandum of understanding (MOU) to increase electricity supplies in Nigeria and to coordinate the ongoing privatisation and regulation of the power sector.
US ambassador to Nigeria James Entwhistle said the increased cooperation “will improve the lives of countless Nigerians and serve as a role model for other African countries whose implementation of energy sector reform is nascent”.
Entwhistle said support for strengthening Nigeria’s energy sector would include grants, technical assistance and investment promotion activities. Nigeria is “well-positioned to reap the rewards of this increased focus on the energy sector”, Entwhistle said.
The MOU is part of the US-backed Power Africa initiative launched by President Barack Obama in June 2013 with the aim of doubling the number of people with access to power in sub-Saharan Africa. The programme targets activities to boost energy security, increase economic growth and decrease poverty by investing in oil and gas, wind, solar, hydropower and geothermal resources.
For the first five-year phase of Power Africa, up to 2018, the US government has already committed more than $7 billion in financial support and loan guarantees, in addition to the support and expertise of 12 federal US agencies. Development finance partners include the African Development Bank and the World Bank.
According to the US Agency for International Development (USAID), every dollar the US government has committed to Power Africa has already attracted $2 in private sector investment commitments. Power Africa’s financial partners have committed to providing more than $14bn in project finance through direct loans, guarantee facilities, and equity investments.
Since its launch, Power Africa has also provided political risk insurance for project loans and supported risk mitigation efforts in coordination with the Nigerian government. In partnership with General Electric, the US African Development Foundation and others, Power Africa has awarded three $100,000 grants to entrepreneurs for innovative, off-grid energy projects in Nigeria.
In 2013, Power Africa partnered with the pan-African Ecobank to increase lending to the renewable energy sector. To date the bank has awarded more than $500,000 in loans to clean energy companies, USAID said.
Nigeria’s government has launched a three phase liberalisation process of the energy sector. According to USAID, in the first phase, five generation and 10 distribution companies linked to the country’s main power holding company have been privatised since 2013. In addition, the Niger Delta Power Holding Company (NDPHC) is privatising 10 newly-built generation plants.
The newly-privatised generation companies are contractually required to increase generation for each plant over the next five years up to a total 6,000 megawatts (MW) of installed generating capacity.
USAID said: “An additional 2,000 MW increase will stem from investments by new independent power producers. To help achieve these ambitious goals, the government of Nigeria is focused on sustaining a stable investment climate for private sector participation in the sector, expanding transmission and distribution networks to deliver power to customers, maintaining a creditworthy off-taker of electricity, establishing cost-reflective tariffs, and reducing inefficiency in support of affordable end-user tariffs.”
Written by Pinsent Masons LLP