World Bank power sector loan in Nigeria raises energy costs as economic crisis bites

6 October 2020

As Nigeria enters a deepening economic recession following a 6.1 per cent contraction in the second quarter of 2020, a $750 million World Bank Group (WBG) Program for Results (P4R) loan (see Update 79) for the power sector approved in June has resulted in increased electricity rates.

The Power Sector Recovery Operation seeks to reform Nigeria’s power sector, including by establishing “sustainable and appropriate electricity tariffs.” Although it incorporates limited measures to mitigate the impact on the poorest consumers, including capping rates for unmetered customers and maintaining an affordable tariff for those consuming less than 50kWh of energy per month, according to Nigerian news site Nairametrics, the new tariffs mean “most Nigerians will now have to pay more for electricity.”

As noted in a 2019 report by UN Women and the International Labour Organization, “Higher energy prices… tend to slow down economic activity and thus generate unemployment. The sudden removal of fuel subsidies and consequent increases in prices have sparked protests and violent riots in many countries.”

The P4R, meanwhile, does little to advance Nigeria’s green energy transition. A June report from Netherlands-based civil society organisation Recourse and partners found the World Bank’s recent energy lending to Nigeria to be heavily biased towards fossil fuels, noting, “From 2014 to 2019, the WBG provided $1.8 billion or 69 percent of total energy sector finance to oil and gas projects, including for…one of the world’s largest oil refineries.”

Following the approval of the P4R, news reports surfaced in August that negotiations between the Bank and the Nigerian government had broken down over reforms required to obtain an additional $1.5 billion development policy loan, raising further questions about whether the Bank’s Covid-19 response is fit for purpose (see Observer Summer 2020).