Three of Germany’s biggest banks – Deutsche, Commerzbank, and KfW – have expressed an interest in providing financing to support the Siemens power deal with the Nigerian government, BusinessDay has learnt, even as the deal is fraught with teething challenges.
Abba Kyari, chief of staff to President Muhammadu Buhari, Sale Mamman, minister of power, and their entourage met with Siemens executive and senior officials of these banks on March 9 to discuss the proposed $1.6bn power deal.
The discussions were inconclusive, according to some people with knowledge of the meeting.
According to an early draft of the negotiation between the Nigerian government and Siemens, a German bank through Siemens will fund an SPV (special purpose vehicle) or public entity to carry out the project. It is to be repaid by collections from DisCos, backed by the Ministry of Finance.
However, DisCos’ finances are awful. There is an estimated shortfall of over N2.4 trillion in the Nigerian Electricity Supply Industry, which consists of market shortfall of N1.335 trillion caused by DisCos’ inability to collect adequately and fully remit their collections, and tariff shortfall of N1.109 trillion caused by the regulator’s decision not to allow cost-reflective tariffs according to a new government report.
Piling $1.6 billion debt on a weakened balance sheet presents a difficult challenge.
The deal had previously included a floating interest and lower equity contribution from Nigeria of around 20 percent on some key projects. Tenor would be for the construction period of two years plus repayment term of eight to 10 years.
These terms have since changed. The three banks could finance the project at 2 percent interest if negotiations proceed according to plans. The German government will provide a guarantee.
President Buhari had on July 22, 2019 signed a power agreement with Siemens which was supposed to help double Nigeria’s electricity generation and raise distribution capacity three-fold to 11,000MW by 2023.
Siemens would fix the power distribution and transmission aspect of the electricity challenge in a roadmap brokered by German Chancellor Angela Merkel when she visited Nigeria in 2018.
According to the presentation Siemens made to the Nigerian government, seen by BusinessDay, the company’s intention was to deliver results similar to those in Egypt that are tailored to the specific needs of Nigeria.
Siemens built three combined-cycle power plants and wind farms, adding over 14GW to Egypt’s capacity at the cost of £8 billion.
In Nigeria, Siemens would carry out a comprehensive upgrade of Nigeria’s weak electricity grid capable of wheeling less than 5,000MW and reduce technical and non-technical losses.
Siemens would also aggregate all DisCos’ investments in their network including cables, switches, transformers, and substations to raise the distribution above the current 4,000MW.
The German company would also resolve gas constraints to power plants by seeking to tap into the AKK pipeline for fuel supply so abandoned turbines can be restarted. Half of Nigeria’s 13,000MW generation is constrained due to a lack of gas.
The deal which would see Siemens invest about $1.6bn into Nigeria’s power sector over the next five years tasks power distribution companies (DisCos) to improve collections aided by smart metering, cost-reflective tariffs and technical support.
“Our intention is to ensure that our cooperation is structured under a Government-to-Government framework. No middlemen will be involved so that we can achieve value for money for Nigerians,” Buhari had said in a speech announcing the deal.
Analysts say the success of the deal will benefit all parties and the country in general.
“The deal is a good one for all the parties, that’s why the DisCos signed up, but it is fraught with risks in the event of a default,” said Chuks Nwani, an energy lawyer based in Lagos.
According to the Power Sector Recovery Programme, a World Bank-sponsored study to improve the power sector, the Nigerian economy loses over $29 billion annually due to inadequate power supply.
ISAAC ANYAOGU
