World Bank-backed power project risks defaulting due to dollar scarcity in Nigeria


NIGERIA'S attempts to address her chronic electricity supply problems are facing a serious hitch after it emerged that a World Bank-backed power plant electricity is at risk of a default on its loan payments because of a severe dollar shortage.


Faced with an impossible situation whereby the country only generates 7,000MW of which it can only distribute 4,000MW of this, Nigeria is desperately looking for ways to address the issue. With power supply far below demand and less than a quarter of say Egypt's 50,000MW, most Nigerians rely of private generators for their electricity, which is not only expensive but also very environmentally unfriendly.


This World Bank supported project, the $900m Azura-Edo Independent Power Plant in Edo State has been unable to source dollars through the Central Bank of Nigeria (CBN) to repay its loans. It currently provides about a tenth of Nigeria’s electricity but due to the scarcity of dollars as a result of the collapse in oil prices and demand, the facility is unable to secure dollars from the CBN.


One power industry executive and financier, said: “They have the funds in naira but they just can’t make the payment because they’re in the queue for dollars at the CBN and there just aren’t enough. If a project like this can’t get dollars then what are you really saying?”


According to the financier, the World Bank and the multilateral lenders that funded Azura have long held it up as a model for major infrastructure project investment in Africa. He added that as a result, they are unlikely to aggressively pursue the repayment.


However, any default, even if only technical, would at least temporarily slam the door on similar large projects in Nigeria, further squeezing foreign investment. Nigeria's dollar shortage has been driven by a precipitous fall in the price of oil, which provides 90% of the country’s foreign exchange, as well as a drop in remittances and an exodus of portfolio investors.


Azura produces 460MW of power, receives payment in local currency and has enough naira to meet its obligations but it needs the CBN to convert its naira to dollars. Edu Okeke, the  managing director of Azura Power West Africa, said that Nigeria faces a tsunami of challenges at the moment.


Mr Okeke added: “The government is fully aware of the need to unify the rates and clear the imbalance between the supply and demand for hard currency. Indeed, in recent weeks, the CBN has already taken welcome steps in this direction.”


One senior CBN official said that it told Azura to seek dollars in its official Investors & Exporters FX channel in July when the company told the bank it was having trouble sourcing dollars and could default in November. However, there have been fewer dollar sales in recent months.


During a similar dollar shortage in 2016/17, multilateral lenders extended terms for major projects, according to one senior development finance official. He added that he suspects that is what will happen now as well.


Azura, which is backed by London-based private equity firm Actis, as well as by the CDC, the UK government’s development investment arm, has been held up as a model for how international investment could be deployed to fix the mass power shortage that make Nigeria one of the least electrified countries per capita in the world. The project’s $686m in debt financing was raised in 2015 from 15 lenders, is a reflection of the high risk associated with Nigeria’s power sector.