Nigeria’s electricity sector seems to be on the verge of gaining stability and eventual transformation which have been initiated by the signing of an implementation agreement of the Nigeria Electrification Roadmap (NER) signed between the Nigerian government and Europe’s largest engineering company, German Siemens AG. However, the details of Siemens’s technical and commercial proposal hold significant energy security concerns for Nigeria in the long term, hence requiring an urgent review.
This, it seems, did not come to the knowledge of the Nigerian government and her policy makers and needs to be highlighted for strategic decision making in further engagements and implementation of NER.
Among other benefits that Siemens’s proposal listed, it also boasted of the benefit of being “one basket supplier for generation, transmission, distribution and automation” of Nigeria’s electricity infrastructure. This is potentially rewarding with multiple benefits of cost-effectiveness including reduced transaction costs; ease and speedy procurement processes and contract negotiations; effective project coordination, implementation and management; efficient business process workflow for the electricity market. However, this one basket of multiple benefits comes with its challenges. How so?
The Phase 1 of the proposed projects promises to deliver additional 2GW of electricity to the grid and significantly reduce Aggregate, Technical, Commercial and Collection (ATC and C) losses, while the Phase 2 will increase grid capacity to 11GW and achieve further reduction in ATC and C losses which will lead to achieving optimal grid stability and reliability. These two projects comprise of supply, installation and maintenance of several electrical and communication hardware and software across the entire grid infrastructure.
The success of these Phase 1 and Phase 2 projects are significantly reliant on Siemen’s globally recognised Spectrum Power™ 7 based SCADA/EMS (Supervisory Control and Data Acquisition/Energy Management System). While Siemens may possess the required technology and capabilities to deliver on its promises – particularly in stabilising and in guaranteeing optimum reliability of the grid, it puts Nigeria’s energy system in a highly compromised situation of perpetual reliance on Siemen’s technology. What are the dangers?
As Nigeria’s grid continues to grow in scale, it will require the same Siemens technology to communicate with the rest of the grid infrastructure and gradually, the technology will become the bloodstream and red blood cells of the grid and eventually Nigeria’s grid will be locked into the technology. What this means is that in the event that Siemens and the Nigeria Electricity Supply Industry (NESI) disagree with some/any of Siemens’ services in the future (which is very likely, due to the peculiar electricity market challenges that Nigeria is reluctant and unable to solve) and decides to try another service provider, the NESI cannot disengage from Siemens because of the risk of the entire grid collapsing.
This is because Siemens may have to retrieve its assets (depending on the financing model agreed with the NESI initially). If, at the time, it is NESI that owns the assets, it may have to maintain a costly maintenance and support service contract with Siemens particularly for software upgrades to keep the grid up and running.
In any case, this scenario is possible if Siemens’s hardware and software are compatible with the new service provider’s hardware and software for a seamless integration to take place. But it is highly improbable without bugs.
Also, on incompatibility, the NESI may have to get rid of Siemen’s technology in favour of the new provider’s technology, at grave cost in terms of economic losses due to grid failure that will occur and cost of project implementation it can’t afford.
The scenario which is more likely is that NESI will have to continue business with Siemens irrespective of the quality of service delivery against what it promised in its proposal which in itself is not very clear, as there are quite a number of services that Siemens offers that is not made available in the proposal it sent to the government. An important question that NESI and government need to ask is how these services Siemens specified as not offered in the proposal, affect the efficiency of the grid, and would NESI need to engage Siemens differently to offer these services if the grid will eventually need these services in the future to function optimally and at what cost to NESI will this be?
Another concern is that the Phase 3 of the proposed projects that will increase Nigeria’s capacity to 25GW through additional generating capacity of about 7,200MW is reliant on gas, particularly the 1,350MW each for Abuja, Kaduna and Kano states proposed by the Nigerian National Petroleum Corporation (NNPC) with Siemens supporting the projects using its SSC5-2000E, SGT5-2000E gas engines, steam turbines and other gas technologies.
These projects rely on the proposed AKK (Ajaokuta-Kaduna-Kano) Pipeline Project to supply gas to the power plants. The challenge is that Nigeria is yet to adequately solve the insecurity problems especially in the Niger Delta in the oil and gas sector which has resulted in significant drop in electricity generation. Until this is solved, it will be foolhardy to keep planning and relying on long stretches of gas pipeline projects that originate from the Niger Delta.
In the meantime, Nigeria may need to significantly diversify its electricity generation portfolio, and think toward other markets and utilisation of her gas resources that do not require long distance networks of gas pipelines that cannot be adequately secured. These include solar, wind, biomass, biogas and nuclear power. For instance, the nuclear power plants initially planned to be located in either Kogi or Akwa-Ibom states could be sited in either Kaduna or Kano states to replace the proposed gas power plants. This requires no transportation of any thermal fuel to the power plant.
Interestingly, negotiations between the Nigerian government and ROSATOM are progressing steadily on the nuclear projects, although, nuclear power is not an energy source that Germany and Siemens may want to be associated with.
Mr President may have left industry stakeholders in doubt about Nigeria’s actual intended energy policy and pathway during his speech at the agreement signing, as there are other energy sources that the country is exploring that weren’t highlighted.
If the Siemens deal pulls through as it is proposed, it is evident that Nigeria will have to take her bilateral relationship with Germany more seriously, perhaps Germany will ascend, herself, to become Nigeria’s most important partner.
I think, rather convincingly, that we should have more than one grid automation provider from different countries for Nigeria’s electricity system. This can be structured in a way that different service providers will be serving different geographical sections of the transmission and distribution network which will be integrated at a central command that the Transmission Company of Nigeria would be managing.
While, there is need to create a stable electricity loop by installing significant electricity generation capacity in the North, this shouldn’t be done without significant thought to important energy system dynamics and factors militating against electricity market growth and development. This will remove the energy insecurity problem of NESI’s hope and reliance on future generation capacity from proposed projects.
OKAFOR AKACHUKWU
Akachukwu is the founder and principal partner, change partners international, [email protected].
