Nigeria/Siemens deal could unravel power sector privatisation

The power agreement signed between the Nigerian government and Siemens, a leading German electric company on Monday while capable of doubling Nigeria’s output by cutting losses associated with dilapidated power assets has implications for the power sector privatisation.
Findings show that the deal could cost as much as $3billion, 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.

But since privatisation five years ago, DisCos have struggled to match collections with power received. The last report by the regulator, the Nigerian Electricity Regulatory Commission (NERC) said that DisCos collected only 65 percent of the value of electricity sold in the three months ending 2018, but remitted only 33percent to the value chain.

In monetary terms, total billing to electricity consumers by the eleven DisCos was 172.9billion but only a total collection of 106.7billion representing 65.5% of billing was recorded according to the third quarter of NERC.

“The collection efficiency indices indicate that a sum of 3.45 out of every 10 worth of electricity sold during the third quarter remains uncollected as and when due,” NERC said. Thirty-three percent of the remittance indicates a value of N2.1every N7 worth of electricity sold.

The Siemens presentation to the Nigerian government is based on the assumption that Nigeria’s power market can earn $40 billion more if it reduces Aggregate Technical and Commercial Collection (ATC&C) Losses and expands generation capacity by 2028.

ATC&C loss is the difference between the amount of electricity received by a DisCo from the Transmission Company and the amount of electricity for which it invoices its customers plus the adjusted collections loss.

According to the proposed deal, Siemens will 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.

It will aggregate all DisCos’ investments in their network including cables, switches, transformers and substations to raise distribution above the current 4,000MW.

BusinessDay gathers that Siemens will also try to resolve gas constraints to power plants by seeking to tap into the AKK pipeline for fuel supply so abandoned turbines can be restarted and use off-take previously flared gas. Half of Nigeria’s 13,000MW generation is constrained due to lack of gas.

Through smart metering and improvement of DisCos capacity, it is hoped the DisCos would raise collections and repay Siemens investment, which may be classified as a loan to their books.
However, the challenge for Discos is that their books are already strained. Most of their shares were used to finance loans to buy power assets. They are technically bankrupt and a new facility will irreparably dilute their stakes enough for the government to them over in the event of default.

“There is a real possibility that their assets can be taken by the government,” says Chuks Nwani, an energy lawyer based in Lagos. “This could mean the end of the privatisation but I’m sure the DisCos know they will benefit otherwise, they will not have agreed to it.”

President Muhammadu Buhari while signing the agreement said fixing the power sector was a key priority for this administration.

“This is why I directed my team to ask Siemens and our Nigerian stakeholders to first focus on fixing the transmission and distribution infrastructure – especially around economic centres where jobs are created,” Buhari said.

While technical challenges exist, fixing the market is the biggest problem in the sector. An analysis of the 2017 financial statements of ten DisCos show accumulated losses or retained earnings N713.63 billion from N288.85 billion the previous year.

Losses in the sector rose to N1trn by June 30, 2019, while payments to both the Nigerian Bulk Electricity Trading Company (NBET) and the Central Bank of Nigeria is N2trn.  The investors who purchase the power assets during the privatisation exercise are still heavily indebted to Nigerian banks up to the tune of over N500bn which are currently non-performing.

ISAAC ANYAOGU