Nigeria’s power distribution infrastructure is getting a major makeover as President Muhammadu Buhari has directed the Ministry of Finance to release to Siemens AG the government’s share of funding in the power deal agreed last year.
According to an April 28, 2020 letter signed by Abdul Mutallab Muktar, senior special assistant to the president, and addressed to the minister of finance, budget and national planning and the minister of power, seen by BusinessDay, the Finance Ministry will pay from the Signature Bonus Account the negotiated sum of €15,206,166 (offshore works) and N1.7 billion (onshore works) which has been approved as Nigeria’s 15 percent counterpart funding for the concessionary loan.
“This signals that the Federal Government is in a hurry to leave a legacy of improved power delivery,” said Chuks Nwani, an energy lawyer based in Lagos.
The Federal Government has convinced the distribution companies (DisCos) to sign the concessionary loan agreement as they would enjoy the immediate benefit of improved power distribution assets. It will also obligate them to repay but the Federal Government, by this action, is guaranteeing the whole sum to quickly start development while finalising the agreement with the DisCos, Nwani said.
But this raises another concern as industry watchers wonder how the government will negotiate contracts and then seek to impose them on the private sector owners of the DisCos. The federal and state governments own 40 percent stake in the DisCos.
However, industry experts say the problem with Nigeria’s power sector is not just about decrepit network infrastructure, it is about discipline in enforcing and complying with market rules.
There is an urgent need to fix governance at the public and private aspects of the power sector and the regulator needs to be proactive in fixing the market and enforcing rules, Eyo Ekpo, director, New Frontiers Limited and a former commissioner, Nigerian Electricity Regulatory Commission (NERC), said at a recent power sector webinar organised by PwC Nigeria.
The absence of governance and functional electricity market has shut out access to private equity funds, including the pension funds, as invested funds cannot be recovered and created the need for Nigeria to rely on the Siemens funding-type arrangements.
According to the letter, the president has also directed that the relevant agencies immediately conclude the necessary procurement and contracting processes to kick off Phase 1 of the project. He also directed the minister of finance to establish and capitalise a project SPV to engage Siemens to commence the pre-engineering and financing workstreams.
For Nigerian EPC contractors who may have been hoping for a slice of the pie, they would have to keep their fingers crossed as the president directed that Siemens AG be charged with nominating EPC partners to perform all onshore works.
According to the letter, the objective is “to preserve the integrity and transparency of the procurement process under the government to government framework”.
Analysts say the rate of the concessionary loan is low and the terms friendly, but the cost of the network equipment will be out of Nigeria’s control with the way the agreement is structured as Siemens will provide equipment from its factories.
The president directed that legal agreement between the project SPV and the Siemens Consortium be reviewed by the attorney general to the federation.
In his New Year letter to Nigerians, Buhari said a significant improvement in electricity service supply was expected in the next 12 months (beginning January 1, 2020), banking on new public and private investments into the sector.
Buhari also referenced the deal with Siemens signed on July 22, 2019 which will see the German company upgrade transmission and distribution network to double Nigeria’s electricity generation and raise distribution capacity three-fold to 11,000MW by 2023.
“Consumers will be the biggest winners as it will translate to improved power delivery if all proceed according to plans,” Nwani said.
