• Friday, March 29, 2024
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Fg/siemens power deal: Parties expect financial close by Nov.

Fg/siemens power deal: Parties expect financial close by Nov.

The Federal Government through the Bureau of Public Enterprise (BPE), German company Siemens, and the electricity distribution companies (Discos) have held multiple meetings since President Muhammadu Buhari announced on July 22, 2019 that Nigeria would ink a power agreement with the German company and anticipate financial close by November this year.

Businessday gathered from sources with knowledge of these meetings that the success of the deal depends on Discos’ acceptance of the terms, their ability to distribute energy provided and improve collections to repay the loan.

So far, meetings have been held with at least six of the Discos including Ikeja and Eko Discos to firm up terms.

The first phase of the deal is to add 2,000 megawatts to Nigeria’s power generation and improve the ability of the Transmission Company of Nigeria ( TCN) to wheel all the energy generated. To this end, the Federal Government will in crease capital expenditure to improve TCN’S ability to upgrade its transmission network.

Businessday learnt that the Discos were given the option of picking a shopping list of assets that would be upgraded or replaced within their distribution network. A shareholder loan arrangement is being discussed to pay for the assets and a default could impair the shares of the core investors in the Discos.

The Nigerian government currently controls 40 percent shares in the Discos. However, before Siemens commits to the deal, the Discos are required to demonstrate an ability to repay, a source said. The electricity sector regulator, the Nigerian Electricity Regulatory Commission ( NERC), is reviewing electricity pricing towards making it sustainable for the operators and consumers.

Analysts say the success of the deal will benefit all parties and the country in general. According to the Power Sector Recovery Programme, a World Bank- sponsored study to improve the power sector, the Nigerian economy loses over $29 billion annually due to inadequate power supply. “The deal is a good one for all the parties, that’s why the Discos signed up, but it is fraught with risks in the event of a default,” said Chuks Nwani, an energy lawyer based in Lagos.

To ensure the success of the deal, NERC will effect two minor tariff reviews in January and August 2020 to the Multi-year Tariff Order (MYTO), the template used to model electricity pricing in Nigeria. The regulator recently published a model of cost- reflective tariff for all the Discos which showed that even if cost- reflective tariffs were in place since 2015, Discos would still be indebted to the tune of N196.9 billion based on market shortfalls attributed to their poor collection ability, electricity theft and power lost through a poor grid network.

NERC has fur ther directed that Discos promptly meter all government ministries and departments to reduce market shortfall. “This Order reiterates that the responsibility and initiative for revenue collections from all customers including Ministries, Departments and Agencies of States and Federal Government rests with the Discos,” NERC said in a directive to each Disco. “Accordingly, this Order makes it mandatory for all Discos to meter all MDAS with appropriate meters of their choice within 60 days from the effective date of this Order.

All Discos reserve the right to disconnect any MDAS defaulting in the payment for electricity in line with the Regulation on Connection and Disconnection Procedures for Electricity Services,” it said. According to the proposed deal, the German company will upgrade transmission and distribution networks which could double Nigeria’s electricity generation and raise distribution capacity three-fold to 11,000 MW by 2023.

It will aggregate all DisCos’ investments in their network including cables, switches, transformers and substations to raise distribution above the current 4,000MW. Businessday gathered 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 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 shareholder loan from the FG in their books.