New power MoU with Siemens stirs concerns, uncertainty
While the Nigerian power sector has remained a notable failure five years after it was privatised, a new deal between Nigeria and Siemens of Germany has raised fresh concerns and criticisms regarding the government’s readiness to address the numerous challenges bedeviling the sector. KINGSLEY JEREMIAH writes on the apparent fault lines in the Memorandum of Understanding.
Erik Brynjolfsson, an American academic, who is currently a professor at the MIT Sloan School of Management and Director of the MIT Initiative on the Digital Economy, once described electricity as an example of a general-purpose technology like the steam engine, before it.
General-purpose technologies drive most economic growth because they unleash cascades of complementary innovations, like light bulbs and factory redesign. Unfortunately, in Nigeria, the road to stable electricity supply, which is expected to transform people’s lives economically and socially, appears to be longer than the Pan-American Highway, adjudged the longest in the world, with over 30, 000 kilometres.
While successive governments have entered into numerous hasty and watery pacts in the guise of trying to address compounding challenges in the power sector, the recently signed Memorandum of Understanding (MoU), between Nigeria and Siemens of Germany, has continued to attract criticisms over unanswered hitches, which many believe make obvious mockery of the entire situation.
Considering the campaign promises of the All Progressives Congress (APC)-led government on the power sector, and the persistent call for a review of the privatisation arrangement five years on, the Federal Government’s intervention in the sector is not only expected to present a new ray of hope for the wobbling sector, but show a clear-cut action plan aimed at improving the sector to Nigerians, and giving them a new lease of life.
To show that President Muhammadu Buhari may not be fully aware of the enormity of challenges in the sector, he noted at the signing ceremony of the new MoU that previous governments explored state-funded solutions through what he described as an ill-prepared National Independent Power Projects (NIPPs), adding that preceding administrations equally explored the installation of large emergency power projects with partial privatisation of the power generation and distribution sectors.
“These various interventions to solving the electricity problem have yielded an imbalance between the amount of power generated and the amount available for consumers. Despite over 13, 000 megawatts of power generation capacity, only an average of 4, 000 megawatts reliably reaches consumers,” Buhari said while stressing that the new pact is “an excellent opportunity to address this challenge.”
The six-year roadmap agreement, which brought Siemens’ AG global Chief
Executive Officer, Joe Kaeser to Nigeria was structured in three phases. The plan is expected to, in the first segment, increase the system’s end-to-end operational capacity to seven Gigawatts (GW).
The second phase is targeting the remaining network bottlenecks to enable full use of existing generation and distribution capacities, the planned projected delivery of the system’s operational capacity of 11 GW.
Phase three, which hovers around developing the system up to 25 GW capacity, in the long run, is expected to appropriate upgrades and expansions in the generation, transmission, and distribution.
Propelled by an earlier meeting between German Chancellor, Angela Merkel and Buhari, the MoU shows that the development plan would include rehabilitation, upgrades and expansion of transmission and distribution networks, and power generation, as well as capacity upgrade.
According to Siemens, the proposal covers high-level technical specifications for identified projects in phase one and other projects, which could be considered in phases two and three.
“Aside tangible grid network assets that require an upgrade or replacement, there are other intangible projects, which are proposed to improve significantly, the grid quality and reliability. In identifying these projects, Siemens has been technically guided by the preliminary power system simulation analyses carried out on the grid network by Siemens experts in the Power Technologies Institute,” the MoU noted.
In Egypt for instance, Siemens reportedly assisted in the implementation of the country’s power generation project, where about 14.4 GW of electricity has been added to the national grid through combined cycle power plants, wind turbines, sustainable wind farms, as well as, gas-insulated switchgear substations.
Meanwhile, Nigeria has a partially privatised energy sector, but the state owns and controls the sector in Egypt. Egypt’s electricity law, which was passed around 2015 and the implementing regulations, published in 2016, unbundled the sector into separate independent companies responsible for generation, transmission, and distribution. The companies are, however, linked, together under Egyptian Electricity Holding Company (EEHC), which has 16 subsidiaries.
By virtue of the November 2013 privatisation in Nigeria, unlike what the sector has remained, it was expected to attract private investors thereby limiting government to the creation of an enabling environment, policy direction and regulation that would improve the electricity supply, while the private sector takes the lead, including sourcing for the needed fund. Unfortunately, the sector has not operated as designed to.
Reasons attributed to the poor performance of the sector include inconsistency in policy and weak regulation. Even though the sector is privatised, but like the pact with Siemens, government dictates how the sector operates, instead of allowing market forces to do so.
Siemens And Its Power Projects In Nigeria
SIEMENS is regarded as a global giant with specialisation in electronics and electrical engineering. The company provides products, systems, and solutions across electrification, automation, and digitalisation value chain. The company, which came into Nigeria in the 1950s and has carried out a number of projects, especially in the telecommunication and power sectors, has operated in Africa for over 157 years and prides itself in playing a constructive role in Africa’s success story.
In 1964, the company started its major power project with the building of a hydroelectric power plant in Kainji. In the early 2000s, the company had another key project- building the world’s largest end flash gas (EFG) single-shaft compressor manufactured for Nigeria’s LNG, and NNPC. In 2001, Siemens supplied turnkey mechanical and electrical package for the Main Bowl Complex, National Stadium in Abuja; Siemens completed the Geregu 420 MW open-cycle power plant in 2005 and in 2008, the Power Holding Company of Nigeria (PHCN) awarded the firm contract for the construction of the Benin-Onitsha and Gombe-Yola 330/132kv substations.
Commenting on its role in Africa, the firm in a note on its website said: “Our expertise in power-efficient, resource-saving technology helps us empower African economies. We are a leader in the digital revolution; we develop smart mobility solutions to make transport systems more efficient. With industry 4.0 underway, we digitalise production, increase output, simplify processes and produce quality products. This gives the company a competitive edge.”
Over the years, Siemens has got contracts for the installation of the Supervisory Control and Data Acquisition (SCADA) three times, for the national grid under the defunct PHCN and present Transmission Company of Nigeria (TCN).
Unfortunately, the TCN has repeatedly noted that the SCADA project has remained one of the critical challenges facing the national grid as the grid has collapsed persistently in recent times.
The SCADA and Energy Management System (EMS) were meant to automate the transmission grid so that the System Operator (SO) of TCN can monitor all operations on the national electricity grid. With SCADA and EMS, it could generate data, track offenders, and monitor all core networks of generation, transmission, and distribution.
The company has also been involved in building new substations, including the NIPPs, which were not integrated and the systems were not automated. A lot of things contributed then, but basically, communication is one key.
Not long ago, the TCN reportedly said that Siemens was handling a transmission project in the Lagos axis, a project that it failed to deliver after the timeline elapsed, even when its Letter of Credit (LC) was funded 100 per cent.
Siemens Reputation In Doubt
FOR some stakeholders, one thing that still leaves them embittered is reminding them that Siemens is the contractor responsible for the failed SCADA system that is still undermining system operations, which remains essentially blind, with no control on its most critical job function.
Reportedly, sources that pleaded anonymity disclosed that like other contractors, while Siemens was expected to establish, accept and manage the SCADA contract, it did that to its private benefit without regard to delivering Nigeria’s benefit.
It was recently gathered that Siemens’ management had gone to plead with the presidential task force for political support on SCADA, and they were reportedly told, “you are the SCADA expert, you knew what was wrong with the contract and the field performance, yet you kept invoicing and looked the other way when you should have been protecting your reputation.”
An associate professor of Energy Law at the University of Lagos, Yemi Oke noted that Siemens has contributed to the failure of the Nigerian power sector because the company has been given a number of projects that have not been effectively delivered.
“What has Siemens done in the past that is a success story anyway? Have you seen any documented success stories in the world? You may want to check, there is none. How can you give what you don’t have? That is the challenge,” Oke said.
Other Issues Begging For Answers
In the wake of the new deal, the total power generated in the past weeks, for instance, reportedly stood at 3, 372 megawatts. This is against the installed generation capacity of 12,910MW according to the Nigerian Electricity Systems Operator. The available capacity is put at 7, 652. 60MW, transmission wheeling capacity at 8, 100MW, and peak generation ever attained at 5, 375 MW.
In Nigeria, the problem has not always been in reaching agreements with would-be investors, but in execution. There are catalogues of similar ambitious agreements reached on various alternative sources, which have all fizzled out. And just as the new deal, which has a 2023 deadline set for the generation of 11, 000 megawatts of electricity, the government has always set deadlines before now.
Amid indications that the Permanent Secretary (Power) at the Federal
Ministry of Power, Works, and Housing, Louis Edozien (who holds brief in the power sector in the absence of a minister) was not carried along, the document appears to lack finer financial details, leaving room for wild conjectures.
Indeed, while stakeholders are still questioning how the project would be
managed, government officials at the Presidency have been accused of lacking the expertise to handle the project.
Executive Secretary of Association of Power Generation Companies (APGC), Joy Ogaji, insisted that Siemens’ plan doesn’t capture many things, adding that the document focused basically on the technical solution and “on how Siemens or German government gets paid back their investment.
“Ideally, NERC, ministries of petroleum, finance and the Nigerian Bulk Electricity Trading Company should be part of the document to help consider the commercial implications and how to align the technical and commercial side of the business so as to solve the sector liquidity challenge. The Siemens document is also not in synchronisation with the distribution companies (DisCos) performance investment plans, in terms of the expansion plans. There is a need to align the document with other documents such as the power sector recovery programme, the policy direction from the ministry and the existing market contracts, etc,” Ogaji stated.
According to her, looking at the document objectively, it does not proffer
solutions yet, other than being prescriptive and a good advertorial for Siemens products and services, adding that the Nigerian Electricity Supply Industry (NESI) has gone beyond prescription.
Ogaji equally expressed fear that the Generation Companies (GenCos) were not properly captured in the MOU.
She said: “There are so many questions, especially as it relates to the commercial impact and also the viability of the GenCos in getting this level of capacity to the government without their issue being looked at.
“From 2013 to 2017, they have consistently been taking 3, 000MW even when we make 7, 000MW available. So now, how do I procure more gas to make that 7, 000 MW available when I don’t have an effective gas contract because of the payment volatility. Even the network is an issue. They proposed to work on TCN and distribution networks, but the issues are many. We are reviewing it and we will possibly publish our concerns when we are done,” Dr. Ogaji stated.
In a privatised sector, where the sector is funded with tariff and support from public corporations, experts expressed the need for an open system, which possibly carries everyone along and is also competitive, instead of handpicking partners without due diligence and consultations.
Siemens noted that in developing the roadmap and the proposal, it engaged relevant stakeholders in the power sector, noting that the Bureau of Public Enterprise (BPE), acting on behalf of the Federal Government provided a veritable platform for the exercise.
The group further disclosed that it facilitated a workshop alongside the Federal Ministry of Power, Works and Housing, the Nigerian Electricity Regulatory Commission (NERC), and Transmission Company of Nigeria (TCN) to share thoughts and ideas on the power sector situation, as well as, align on critical solutions, adding that the outcome of the workshop was developed into the roadmap submitted to Buhari.
There were further engagements with the distribution companies and TCN including field visits to all 11 Disco’s on January 2019, Siemens said, adding that a second workshop was organised and facilitated by it in March 2019 to further identify and validate projects for the phase one of the roadmaps.
The outcome of the workshop and further discussions with the Disco’s and TCN have been developed into the technical and commercial proposal. But with the level of criticism coming immediately after the launch of the roadmap, it appears a lot more could have been done in carrying industry players along.
According to the former Chairman of NERC, Sam Amadi, what is currently playing out is nothing short of confusion on the part of managers of the Nigerian power sector reform, adding that the sector appears to be lacking a regulator.
“Government continues to intervene in the market as if it is an unregulated public sector market. In this market, the critical player is NERC and it does not seem like the government fully concedes to that point. It is wrong to present the MoU with Siemens as if the entire sector has been outsourced to it.
“The proper remix of such a contract should be one that government-designated projects, which it wants Siemens to be partners. But it has to go through a proper procurement process to make for cost-effectiveness and regulatory review for prudence and relevant checks. If you don’t do that, then you are not running a regulated industry. Regulation is not a nuisance; it helps the government to control corruption and ensure quality project management. If you don’t follow this process you will fail. That is partly why we failed in the past. We were haphazard in project management and inconsistent in policy,” Amadi said.
The Transmission Rehabilitation and Expansion Programme (TREP), designed by the TCN planned to deliver 20, 000 MW by 2021. This is far below the 7, 000 MW that Siemens proposed for the same year. This is a further testament to the level of policy inconsistency in the system.
To Amadi, the inconsistency between Siemens projection and TCN’s Transmission Rehabilitation and Expansion Programme (TREP) remains a result of lack of regulatory control of the sector, stressing that expansion plans ought to be filed with the regulator, who would review and approve them because of proven logistics and roadmap.
“If these were properly done, they would have ensured bankability and feasibility,” Amadi noted, adding that one can’t be sure of deliverability without regulatory verification and certification.
Executive Director at Nestoil, Dr. Chukwueloka Umeh, who expressed concerns over the current state of the sector, noted that when the privatisation process started back in 2010, there was a good roadmap laid out.
According to him, it was clear how all the assets were going to be sold and how all the debts within the industry were going to be handled, adding that equally clear was the metrics that successive companies had succeeded in buying these assets.
“All of that has changed. All the private companies that came in from overseas and governments that came in from overseas to invest have so been demoralised because the regulations have continued to change every time. You heard the British High Commission said that we must respect contracts. A lot of the contracts that were signed were not respected, and a lot of the rules were changed in the middle of the game. When you say to a person, if you buy this asset, you have 30 or 60 days to pay for it, and if you don’t pay within the stipulated period, we’ll take the asset and give it to the next bidder.
“If we fail to do these guess what happens? We are sending a message to investors that we are not going to do what we said we would do. And that’s what happened. Now, the people that bought the assets were told that within a number of years, they were expected to make certain investments and if those investments were not met, certain sanctions would be applied to them. None of that has really been done. So, in view of this, we have not done true privatisation.
“Today, as a power company, you would jump through so many regulations to try and get a simple license, and I say to people that the license is just a piece of paper; it doesn’t help you get money to build any assets. What we are trying to do in Nigeria is trying to regulate the market into existence, which is not done. We should let the market grow first before regulating it. The regulations that the government should worry about today are simply the regulations that would say these are the type of companies that can do these types of businesses, and the metrics that such companies must meet for them to be able to do this business, as well as, the areas where such companies are allowed to work,” Umeh said.
He added that the government needs to step back and let the companies do what they need to do so that they could actually raise money to do business.
A respected voice on energy economics in the country, Prof. Adeola Adenikinju acknowledged Siemens’ global experience and capacity but expressed worries over the current MoU since the country has been unable to turn previous pacts to reality.
Adenikinju noted that the power sector requires immediate intervention, considering that the outlook of the sector is a disservice to the nation’s economy.