The deal Nigeria signed with Siemens, a leading German power solutions provider, last month could double Nigeria’s current installed generation output of around 12,000MW after 2023 and improve distribution and transmission assets.
Siemens will build new power plants and try to resolve gas constraints to existing power plants by seeking to tap into the AKK pipeline for fuel supply so abandoned turbines can be restarted, according to the agreement.
BusinessDay analysis of the comprehensive plan, however, shows the deal will fall short of fixing the broken electricity market.
A copy of the Technical and Commercial proposal of the Electrification Roadmap for Nigeria prepared by Siemens, obtained by BusinessDay, reads like a catalogue of technical hardware.
The proposal is premised on fixing broken transmission and distribution infrastructure necessary to allow free flow of electricity along transmission lines, including rehabilitating defective connections of key substations to the existing control centre in order to improve the operation of the transmission network.
The plan is divided in three phases. The first phase focuses on improvements that are visible, have immediate benefits, and can be delivered quickly after the project begins. It involves measures to increase the system’s end-to-end operational capacity from around 5GW currently to 7GW by fixing 132/33Kv interface between the Transmission Company of Nigeria (TCN) and distribution utilities in 15 locations, including Lagos, Abuja, Port Harcourt, and Cross River.
The second phase targets remaining network bottlenecks to enable full use of existing generation and “last mile” distribution capacities, bringing the system’s operational capacity to 11GW, while Phase 3 involves developing the system up to 25GW capacity in the long term, with appropriate upgrades and expansions in generation, transmission and distribution.
A review of the document suggests the company is focusing on solutions it can sell to Nigeria in terms of network infrastructure and technology because it does not address key industry challenges, especially fixing the market where only a quarter of market invoices get settled and huge debts remain unresolved.
“The Siemens deal looks good but the market and tariff issues have to be fixed first before it can work,” said Chuks Nwani, an energy lawyer based in Lagos.
Nwani, who said he had proposed similar plans, said the government needed to create a separate instrument to warehouse current debts, until the market corrects within five years after progressive tariffs reviews and new investments into the sector.
On the other hand, the Siemens’ plan calls for a centralised smart metering system to improve collections, enthrone proper monitoring by all stakeholders and ensure proper payback for electricity distribution companies (DisCos), the Nigerian Bulk Electricity Trading Company (NBET), as well as to Meter Asset Providers (MAPs) and their respective investors.
“Revenue protection is ensured and due to the nature of the centralized system, each MAP and DisCo is ensured their revenue, alongside NBET and investors so that all parties enjoy the security of revenue – making investment into the Nigerian electricity infrastructure a risk-free reality,” according to the Technical and Commercial proposal of the Electrification Roadmap for Nigeria.
“The Nigerian Government proposes the setting up of a ‘Special Purpose Vehicle (SPV)’ which will own and control the funding and finance of the new system, as well as receive the income from the consumers so that all stakeholders such as DISCO’s and NBET are paid their rightful dues,” the document further said.
These measures, however, do not address previous debts and huge losses in the system. Losses in the power sector have risen to over N1trn and payments to both NBET and the Central Bank of Nigeria are around N2trn. The investors who purchased the power assets during the 2013 power privatisation exercise are still heavily indebted to Nigerian banks.
Worse still, DisCos’ losses continue to mount. The document says Discos currently receive only 45 percent of total revenue (average aggregate technical and commercial collection losses, ATC&C, are 55 percent), whilst only paying 28 percent on the average for electricity received from Transmission Company of Nigeria (TCN) to NBET and further on to power generating companies (GenCos).
An analysis of the financial statements of 10 DisCos for 2017 shows accumulated losses or retained earnings of N713.63 billion, up from N288.85 billion the previous year.
A source with knowledge of the transaction had earlier told BusinessDay that the deal could cost as much as $3 billion, of which the Federal Government is providing guarantee through the Ministry of Finance, but the agreement is heavily dependent on DisCos improving their collections to recover cost which could imperil privatisation of the power sector.
ISAAC ANYAOGU
