On July 22, 2019, the Federal Government and Siemens signed an agreement, Nigeria Electrification Roadmap (NER), for the financing and implementation of several projects in the Nigerian power sector.
It is important to clarify that the NER is not a new policy document but only a technical proposal by Siemens to the Nigerian government. It is also important to clarify that what was signed with Siemens is not the actual definitive contract for the financing, implementation and execution of the proposed projects under the NER. Definitive contracts under the roadmap will be signed between Siemens and the respective stakeholders in the power sector namely participating DisCos, TCN, the Ministry of Finance, Ministry of Power, BPE, NNPC, etc.
Siemens is no stranger to the Nigerian power sector and is a key player in both the energy sector and Nigeria’s economy. Siemens is well known for building and commissioning the 414MW Geregu power plant-1 acquired by Femi Otedola’s Amperion Energy, and the 434MW Geregu power plant-2 owned by the NDPHC. Siemens has a full team in Nigeria, operating primarily in the power, oil & gas and telecommunications sectors. Beyond its solutions, Siemens is known for its very strong project management and project delivery capabilities. These, coupled with world class solutions, are what set the company apart from its competitors.
Phase one of the proposed roadmap will focus on identifying and de-bottling constraints at TCN/DisCo interface and within DisCo networks, with a view to increase the amount of energy delivered to, and distributed by DisCos by an additional 2GW, significantly reduce ATC&C losses and achieve improved grid stability and reliability.
Contrary to several public perceptions, no new additional generation capacity is planned in Phase one. The additional 2GW is the estimated amount of stranded generation capacity that would now be available for transmission and distribution to customers.
Siemens also proposes to rehabilitate and implement a national Supervisory Control and Data Acquisition (SCADA) /Energy Management System (EMS) and associated telecommunicated infrastructure for the TCN under Phase one of the roadmap. The implementation of the SCADA system will provide the TCN with real time visibility, monitoring and dispatching of the transmission grid.
The implementation of Phase 1 is estimated to cost at least €1 billion. Given the state of the transmission and distribution infrastructure and the financial losses therefrom, this amount seems a modest sum.
Phase two of the roadmap proposes to increase the transmission grid capacity from 7GW achieved under Phase one to 11GW. It will focus on the continuation of transmission and distribution assets upgrate and expansion, introduction of SCADA for DisCos for network automation, execution of embedded power generation projects and the implementation of gas processing projects that would utilize and gather flare gas for power generation.
Phase three of the roadmap is perhaps the most ambitious of the phases. It proposes to increase the transmission grid capacity from 11GW to 25GW, in addition to adding new generation capacities from large scale power projects to be executed by Siemens.
There are a number of issues critical to understanding the proposal and which may affect the implementation of the roadmap.
The participation of TCN and Discos is most critical to achieving the objectives of phase one of the roadmap. Both need to provide relevant data and/or access to their networks for the detailed planning and successful implementation of the NER.
Financing is another critical element of the roadmap. We anticipate that financing for the proposed Roadmap (specifically phase one) would be provided by several German development and export credit finance institutions such as Hermes, KfW, and perhaps other European development and commercial financial institutions. It is almost certain that the federal government may issue direct sovereign guarantee(s) to Siemens that would underpin the financing. It may need to also provide counterpart funding as well. President Buhari mentioned that the Siemens transaction is proposed as a Government-to-Government (G2G) arrangement. Thus the National Assembly may need to approve the financing arrangements of the roadmap.
The financing and contractual terms between Discos and the federal government may determine the willingness of DisCos to participate in the implementation of the roadmap – any financing arrangements between the federal government and Siemens would ultimately become financial obligations/liabilities on the respective balance sheets of Discos and the TCN. Thus Discos will need to first accept any proposed financing and contractual terms.
Considering that the NER is ultimately a loan by the federal government to DisCos and the TCN, DisCos have to ensure that the MYTO electricity tariffs can accommodate the recovery of the capital expenditure and other financing terms under the roadmap. A tariff review will thus be a pre-condition.
The roadmap anticipates that Siemens would handle the procurement for the projects under a sole sourcing procurement arrangement. Sole source procurement for such a large scale, multi-dimensional and integrated projects is a concern, but should not constitute a problem. There is established precedence with the sole source procurement for the Chinese railway construction projects in Nigeria.
However, the main issue for the Nigerian government and the TCN/DisCos (as the ultimate obligors and beneficiaries) is how to ensure that the NER procurement process is competitive in terms of solution costs and actual needs. We advise that a well-defined procurement process/methodology to ensure transparency, price competitiveness and value-for-money, be developed as part of the contractual framework. There should also be significant local content as well under the NER procurement.
In general, the Siemens roadmap is ambitious, but well thought out. Siemens’ world class reputation provides comfort that the proposal is achievable.
In our opinion, the roadmap proposal is a good deal if it sails through the commercial and contractual negotiation stages. The benefits to Nigeria and Nigerians far outweigh the proposed anticipated costs. However, there are several weak points that need to be anticipated during the implementation of the Letter of Agreement.
The Nigerian government must also be mindful of entering into an agreement that it may be unable to fulfil the conditions precedent and/or conditions subsequent for whatever reason. The case between Nigeria and Process & Industrial Development Limited (P&ID) is a recent example.
Lastly, Nigerians are very optimistic people, and many have already expressed optimism that the NER would solve our power problems. However, the NER is just part of the solutions to addressing the problems in the power sector. To quote President Buhari, “this (NER) project will not be the solution to ALL our problems in the power sector. However, I am confident that it has the potential to address a significant amount of the challenges we have faced for decades’.
Odion Omonfoman
Omonfoman is an energy consultant and the CEO of New Hampshire Capital Ltd. He can be reached on [email protected]
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