In July last year, the mood of Nigerians was livened up, then some fresh hope followed. President Muhammadu Buhari had just announced a new plan with German tech giant Siemens AG to reverse the hex that is electricity supply in the country where about half of the population lacks grid access, and the rest long-accustomed to blackouts, despite trillions of naira “investments” in decades and abundant energy potential.
The plan, designed by the German company, has three phases, ultimately targeting 25,000 megawatts (MW) of operational capacity long term from 7,000 MW and 11,000 to be achieved by 2021 and 2023, respectively, through the first two phases. The ultimate target is roughly at par with the country’s current peak demand of nearly 26,000 MW.
At the moment, though Nigeria’s installed electricity generation capacity, according to the System Operator, is 12,910 MW, less than 8,000 MW is available and less than 4,000 MW reaches the final consumers on average, about one-third of what Singapore delivers to 5.6 million people. This operational imbalance is a result of infrastructural bottlenecks between the transmission and distribution services within the mostly privatised industry.
“Removing severe bottlenecks within the transmission and distribution grid is necessary to allow free flow of electricity,” noted Siemens in its proposal obtained by PREMIUM TIMES.
“This includes rehabilitating defective connections of key substations to the existing control center in order to improve the operation of transmission network and to unlock its potential.”
Although fixing electricity has remained a seemingly intractable challenge, a sort of a hex, in Nigeria, the awareness of darkness as a barrier to development is not lost on both the government and the society, including “hustling” young people involved in personal businesses such as fashion designing or digital marketing and those in bigger businesses like high-margin manufacturing.
So, including the Obasanjo administration’s 10,000 MW target by 2007 and Jonathan’s 24,961 MW by 2019, promises to fix electricity are common; and the plan sold to Nigeria, a country of about 200 million people, under Mr Buhari by Siemens is just the latest.
“Our goal is simply to deliver electricity to Nigerian businesses and homes,’ said Mr Buhari in his speech, on July 22, when the Siemens’ chief executive Joe Kaeser flew to Abuja to sign the deal with Nigeria. “My challenge to Siemens, our partner investors in the Distribution Companies, the Transmission Company of Nigeria and the Electricity Regulator is to work hard to achieve 7,000 megawatts of reliable power supply by 2021 and 11,000 megawatts by 2023 – in phases 1 and 2 respectively.”
However, our findings, based on interviews with sector operators, including government officials and private investors, suggest that the Siemens plan, as it is, may count for nothing after all.
Inside the plan
Following a meeting between Mr Buhari and German leader Angela Merkel in August 2018, the latter tapped Siemens to help Nigeria develop a roadmap to address the challenges in Nigeria’s power sector. The result is the Siemens plan document, that is, the technical and commercial proposal submitted to Nigeria in May and endorsed in July.
The plan covers generation, though mostly at the last phase, transmission, distribution, smart metering and supervisory control and data acquisition (SCADA), and knowledge transfer.
For the first phase, the focus would be on “essential and “quick-win” measures to increase the system’s end-to-end operational capacity to 7 GW” by 2021. Nigeria’s peak generation ever is just over 5,000 MW, but most times, capacity is lower and what reaches homes and business is less than 4,000 MW on average.
According to Siemens, the Transmission Company of Nigeria (TCN) would be able to “fundamentally” handle the load increase and also “the 33kV transmission networks of the distribution utilities are able to accommodate this 7 GW (7,000 MW) scenario with minor adaptations only.”
“Finally, the 11 kV and LV distribution levels have shown to have suitable capacity in their existing status already, so that again only minor adaptations in individual cases will be required to implement the 7 GW scenario from generation via transmission and distribution to the actual end-customers,” says Siemens.
It says its approach to the phase 1 projects would be “swift supply and start up-gradation for immediate bottleneck clearance.”
In the commercial proposal for the first phase, the transmission assets would cost 330 million euros for Engineering, Procurement, Erection and Commissioning of 11 containerized GIS Substations, 10 mobile substations, some additional transformers and 140 KM transmission line, which it says is out of its scope.
The distribution assets – including the supply of products and systems for 14 stations; upgrade of 26 existing substations; EPC of three mobile substations – would cost 250 million euros. Then, for power system simulation and system development studies for 25,000 MW, the company proposes 6,804 million euros. But for grid automation and national (smart) metering infrastructure, it says prices are “to be determined”.
With the smart metering solution, Siemens says “government and private institutions such as MAP’s, Disco’s, NBET (Nigerian Bulk Electricity Trading company), NERC (Nigerian Electricity Regulatory Commission), TCN and GENCO’s can gain valuable insight in load consumption data so that strategic planning is made easier and more accurate – reducing unnecessary costs for grid upgrading and new infrastructure.”
“Siemens is therefore pleased to offer our state-of-the-art Smart Metering solution to Nigerian Electrification Program to support the Nigerian Electrification Program. Our solution is based on our industry-recognized, best-of-breed smart metering platform: EnergyIP. With over 100 utilities running EnergyIP to manage over 75M meters, our solution is designed to handle the largest and most complex electric / water / gas metering installations in the world.”
Following the successful implementation of the phase 1 projects and eventual results, according to Siemens, “phase 2 focusses on the expansion of the transmission and distribution network from 7GW to about 11GW to make more power available to the people.”
Phase 2 includes distribution of SCADA to DISCOs; 40 MW power project dedicated to Abuja; North East Transmission Infrastructure projects 2 (NTEP 2 – 830 KM of HV lines; 11 132/33 kV substations; and six 132/33 kV substations extensions), and gas processing projects to ensure fuel availability for the GENCOs.
There are no estimated prices for the phase 2 projects except the Abuja power project put $770-$815 per kilowatt.
Unlike the first two phases, the third phase is not time-bound. “The objective of this phase is to increase the grid capacity from 11GW (expected to be realized from phases 1 and 2) to 25 GW,” says Siemens. “In this phase, the focus will be on the following projects: i. Additional Transmission and Distribution assets upgrade based on network studies and load demand ii. Large Scale Power Projects.”
Such power projects include four plants to be sited in Abuja: +1350 MW; Kaduna: 1350 MW; Kano: +1350 MW; and Lagos (Agura): +450 MW. The company further says additional capacities by new independent power producers are required to close the gap to 25,000 MW.
The 2018 success of Siemens in Egypt, where the company delivered a mega 14,400 MW power project in 27 months, may have contributed to the enthusiasm in Nigeria.
But the realities differ: while power service in Egypt is public sector-led, it is not so in Nigeria. For the latter, analysts and operators, then, have expressed worries about the Siemens’ plan, which is mostly a government agenda, whereas the industry is led by the private sector.
Although Siemens stated that the TCN and the DISCOs participated in the discussions leading to the proposal, a source within DISCOs said the companies were merely hauled before Siemens by senior Presidency officials.
READ ALSO: SPECIAL REPORT: For Nigeria, darkness has great cost: trillions of naira and over 59 years
In all the discussions, details about financing the projects were not discussed with the private sector, PREMIUM TIMES’ investigation showed.
However, the ministry of power told PREMIUM TIMES through an FOI reply signed by permanent secretary Louis Edozien that the financing will be provided by the German government as a sort of development assistance or loan,
“Repayment terms will be worked out between the Federal Government of Nigeria and any operating companies that benefit from the financing,” said Mr Edozien in his reply. “Bureau of Public Enterprises is expected to work out modalities with other relevant government counterparty and the German authorities.”
But concerns remain about incurring debts to fund development in an industry that suffers heavy liquidity crisis.
DISCOs generate revenues for the system and pay back through the bulk electricity trading company, NBET, for the power generated by GENCOs and transmitted by the transmission company. GENCOs and DISCOs are largely owned by private investors, while the transmission company is wholly government-owned.
But DISCOs are ever barely able to deliver optimal pay for the power supplied them, according to the industry regulator, the NERC.
While the 11 DISCOs were issued N190.1 billion for the energy received in the first quarter of 2019, they were only able to remit N52.8 billion, that is 28%, to NBET, according to the NERC. For the same period, their collection efficiency was 64.1% – the total billing to consumers was N182 billion but only N116 billion was collected.
This failure, our source said, is due to low “tariff charged for electricity used by final consumers; and it is the basis of the difficulty in investing in the country’s power sector.”
“If we are having an investment in infrastructure that will enable us to generate and distribute 10,000 MW for instance, there must be a guarantee that we will be able to recoup our investment when the power reaches the final consumers,” said the source.
The liquidity crisis in the industry is acknowledged by authorities.
“Financial viability is still the most significant challenge threatening the sustainability of the electricity industry,” said NERC in its Q1 2019 report. “The liquidity challenge is partly due to the non-implementation of cost-reflective tariffs, high technical and commercial losses exacerbated by energy theft, and consumers’ apathy to payments under the widely prevailing practice of estimated billing.”
But instead of ensuring cost-reflective tariffs, the government continues to cover the shortfall. But the private sector finds this regime unsustainable, PREMIUM TIMES learnt.
“At the start of the privatisation, investors thought the sector was going to be self-sustaining,” said Edu Okeke, the Managing Director of Nigeria’s independent power producer, Azura, making a case for a cost-reflective tariff.
“Investors cannot rely on government subsidy. It is not a reliable incentive.”
The implication of the liquidity crisis is that it erodes the confidence of the private sector to invest in raising the infrastructure for delivering more power to Nigerians. This may have forced the government to embark on the Siemens plan, relying on loan from Germany.
But disagreeing with the government, one private-sector executive, who sought anonymity, said Nigeria’s power crisis “is not about cable and transformers, but commerce. Let the market forces prevail, investments will be brought to improve the infrastructure.”
The ministry of power said in another FOI reply that the Siemens work on the projects identified would start this month, November.
Reached by phone in November last year, the spokesperson for the Transmission Company of Nigeria, which is government-owned, Ndidi Mbah said “arrangements and negotiations were still ongoing” but that “the TCN has identified the projects it wants to be worked on to Siemens.”
For the generation companies, Siemens itself did not indicate in its document that they were engaged with. Yet, to bring the country’s operating capacity to 7,000 MW and 11,000 MW by 2021 and 2023, respectively, the generation companies have to activate idle infrastructure to produce more energy.
A mail to Siemens for comment on this report was not replied.
Siemens built the Azura plant in Edo, a 461 MW project started in 2016 and delivered in 2018. But the company’s boss, Mr Okeke, said they were not part of the Siemens plan with the government.
Our findings showed that there are no agreements concerning the terms with the private sector yet. The BPE did not respond to our FOI request for an update on the plan, including the details about financing and the private sector’s role.
The indications are that the lack of broad-based engagement, that involves the private sector, that leads the industry, may affect the success of the Siemens plan.
Two officials familiar with Siemens matter said the Chief of Staff to the President, Abba Kyari, chiefly controls the process and most of the discussion with other parties had been within “his command.”
But even if the Siemens successfully delivers the projects, Nigeria’s power woes are still not over.
To date, only 40 per cent of the country’s population has access to grid electricity, the power ministry’s permanent secretary, Mr Edozien, told PREMIUM TIMES, disclosing that “the estimate (was) extrapolated from a detailed grid power supply and mapping of served and underserved communities and clusters in five states.”
Several communities in Nigeria’s capital Abuja are among those yet to be connected to grid electricity.
But the Siemens plan does not cover inclusive access. Already, a little more populous Brazil has 100% grid access rate.
THIS REPORT IS PART OF A COLLABORATIVE INVESTIGATIVE SERIES BY DAILY TRUST, THE INTERNATIONAL CENTRE FOR INVESTIGATIVE REPORTING (ICIR), PREMIUM TIMES AND THECABLE, FACILITATED BY THE WOLE SOYINKA CENTRE FOR
INVESTIGATIVE JOURNALISM (WSCIJ) UNDER ITS REGULATORS MONITORING PROGRAMME (REMOP) FOR THE ELECTRICITY SECTOR, WITH SUPPORT FROM THE
JOHN D. AND CATHERINE T. MACARTHUR FOUNDATION