Nigeria-Siemens power deal funding due this week

Siemens will be finalising details about a letter of credit from the Federal Government of Nigeria this week, less than 23 days after signing the pre-engineering phase of a Presidential Power Initiative (PPI) deal seeking to boost power generation in Nigeria.

The development gives a glimmer of hope for millions of households and businesses in Nigeria that had anticipated the deal to put paid to Nigeria’s long struggle to keep the lights on in Africa’s biggest economy.

Despite some initial delays, Siemens is having talks with the Nigerian government team towards financial commitment for the deal that plans to modernise the existing network before enlarging it until the country can produce and distribute 25,000 megawatts.

“This week, we are looking at financing the letter of credit and then working on the advance payment for the deal as well,” Seun Suleiman, managing director, Siemens Energy, told BusinessDay in a private conversation, noting, “Once we get those things rights then it means the purchase order can be recorded on our books.”

Suleiman explained, “The reason why we are expecting the letter of credit is because we are in the pre-engineering phase. In this phase, we have five different proposals, some of which are direct with our parent company aboard.

“There has to be a letter of credit between the parent company and Federal Government through a Special Purpose Vehicle (SPV), FGN Power Company for this transaction to happen.

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“However, for the local portion from Siemens Nigeria we don’t need that, we can hit the ground running but we also have to make sure everything goes as plans.”

The deal agreed in 2019, requires Siemens to boost transmission capacity to 25,000 megawatts by 2025, from 4,500 megawatts. That will help end incessant outages and ensure the inclusion of about a third of the population of more than 200 million people now excluded from the grid.

Siemens will help to facilitate financing for the project through the German Export Credit Agency (Euler Hermes AG), other ECA’s, and other financing Agencies.

“The funding arrangement between the German ECA and the Federal Government is still standing and currently being tidy up as well,” Suleiman said.

Siemens plans to implement the project in phases, starting with the initial phase of resolving current inefficiencies in distribution and transmission while upgrading capacity to 7,000 megawatts. The second phase will target 11,000 megawatts.

Concerning the project meeting deadlines, he said Siemens was ready to hit the ground running, however, as an Original Equipment Manufacturer (OEM) company, “we are working for the FGN power company because it is their project, we are just the original equipment manufacturer that will work with them to execute.

“In terms of meeting timeline, you should speak to the FGN power company.”

The project, expected to be in three phases, is scheduled to be completed by 2025.

“I think we are on track if we go by the pace that we are currently going with the pre-engineering arrangement. We have our teams in Abuja working and discussing on a daily basis to make sure the project goes into execution, which was not the case before,” he said.

The plan has three phases, ultimately targeting 25,000mw of operational capacity long term from 7,000mw and 11,000mw to be achieved by 2021 and 2023, respectively, through the first two phases.

Recall on February 18, the Nigerian Government and Siemens AG signed a contract for the pre-engineering phase of the Presidential Power Initiative.

The pre-engineering phase contract includes Engineering design, finalising project specifications, commissioning works for transmission and distribution systems, and others.

Poor electricity is a barrier to economic prosperity and development in Nigeria. The per capita electricity consumption is only just 144.48kW, compared with South Africa with 4,196.40kWh and Brazil with 2,607.37kWh, according to the World Bank.