Summary
Climate Finance and Green Transitions in Africa
Nigeria Case Study Derisking and Macrofinance Perspectives
Ehireme Uddin
This study argues that Nigeria’s reliance on the dominant derisking paradigm promoted by the Wall Street Consensus is a policy failure. While intended to attract private capital for infrastructure, these mechanisms do not eliminate risk but primarily transfer fiscal and contingent liabilities from private investors to the Nigerian Government. This approach has failed to stabilise the power sector, instead locking Nigeria into unsustainable financial commitments and reinforcing dependencies that hinder a sovereign green transition.
Key Findings
This study identifies two distinct approaches to derisking that are prominent in Nigeria’s power sector, both of which have created severe fiscal burdens. The first, Transnational Concessional Derisking as used in the development of the Azura-Edo IPP, uses an additional layer of guarantees from Multilateral Development Banks (MDBs) to backstop a local Power Purchase Agreement (PPA), mitigating risks that foreign investors deem the sovereign alone cannot cover. The Azura-Edo IPP, Nigeria’s first project-financed IPP, used a World Bank Partial Risk Guarantee and a Put and Call Option Agreement (PCOA) to attract foreign capital. This approach imposed significant contingent liabilities on Nigeria, estimated at $1.2 billion, which are linked to its obligations under the PCOA. The “take-or-pay” clause obligates the state to pay for power in US dollars, even if it cannot be transmitted, creating a massive, long-term fiscal burden.
The second distinct approach is local derisking which can be seen in the PPA/NBET crisis. This approach relies on domestic state institutions, primarily the Nigerian Bulk Electricity Trading (NBET) company, to act as a creditworthy “bulk buyer” and absorb payment risk for private generators. This system established in 2010 has collapsed into a fiscal crisis. A structural currency mismatch with dollar-indexed invoices from some generators against fixed Naira revenue from distributors) has created a massive, unpayable gap. As of early 2025, the total debt owed by the NBET to Generation Companies (GenCos) had spiralled to over N4 trillion. This failure is compounded by the “hybrid public-private” ownership of Distribution Companies (DisCos), where misaligned subsidies (for example, Kaduna DisCo receiving ₦129B despite 36% payment efficiency) force the state to cover private-sector operational shortfalls.
Conclusion and Policy Recommendations
The derisking framework has, in many ways, failed to deliver structural transformation, and what it has done instead is reinforce Nigeria’s peripheral role and macrofinancial vulnerability. A genuine energy transition requires a fundamental shift to a “green developmental framework” centred on the following three aspects. (i) The reclamation of public ownership instead of propping up a failing privatised system, the state must reassert democratic control over critical infrastructure. (ii) Private capital needs to be governed by “sticks” such as binding mandates on local content, profit repatriation, etc. and not be solely incentivised by “carrots” such as public guarantees. (iii) Domestic finance must be mobilised to reduce external dependencies through the development of local currency bond markets and retooling public development banks to actively finance a green industrial strategy, not just facilitate private investment.