Siemens to spearhead Nigeria’s power revolution
A deal signed by Chancellor Angela Merkel of Germany and Nigerian President Muhammadu Buhari could overcome the biggest obstacle to Nigeria’s rapid economic development: the lack of reliable and country-wide electricity.
This is part 5 of series.
According to statistics from the World Bank, only about 50% of Nigerians have access to electricity. However, access does not equate to reliability.
The journey towards this deal, termed the Presidential Power Initiative (PPI), began on 31 August 2018, when Merkel and her business delegation, including Siemens AG CEO Joe Kaeser, visited Nigeria to meet with President Buhari.
Road to PPI
The plan involves a five-fold increase in national generating output, the revamping of the power distribution and transmission systems in a massive construction project that promotes local skills and sustainable technology.
In July 2020, Siemens Nigeria officially received approval from the Federal Government of Nigeria for the pre-engineering phase of the expansion of Nigeria’s electricity capacity to 25,000MW from the current average of around 4,500MW.
This is the initial step of the PPI.
The project will have three phases, expected to be completed by 2025.
This first step, to be completed in 2021, involves:
- The upgrade and expansion of transmission and distribution infrastructure – the Transmission Company of Nigeria (TCN) and Distribution Companies (Discos).
- The improvement of access to affordable, efficient and reliable electricity.
- The support of industrial development and economic growth – there will be significant opportunities for Nigerian companies to provide local content in the areas of site surveys and soil investigation, civil works, the supply of smart meters, data centre hosting, power system modelling, to name but a few.
In an interview with The Africa Report the MD of Siemens Nigeria, Onyeche Tifase, explains that the electricity regulator in Nigeria, the Nigerian Electricity Regulatory Commission (NERC) will ensure that suppliers get the required value for the tariffs they are paying.
Several regulations have been put in place over the last few years to ensure that whatever investment is being made in this project can be recovered through a proper payment mechanism and also the right value of tariff.
Is the project likely to succeed?
The PPI, formerly known as the Nigeria Electrification Roadmap, could be argued to be what Buhari’s former chief of staff, and crucial member of the government cabal, Abba Kyari gave his life for. He was sent by the President to discuss the plan in Germany, as Buhari’s trusted advisor, in lieu of Minister of Power Sale Mamman, and it is on this trip that he caught the coronavirus, which was, in his case, fatal.
Special Adviser to the Minister of Power, Abba Aliyu, qualified Minister Mamman’s role in the project to The Africa Report, saying: “The role of the minister is clear: providing a policy guideline and creating the institutional framework for it. The project has its own SPV [Special Purpose Vehicle] and PMO [Project Management Office] to ensure continuity after this government.”
He continues: “The Minister provides governance and supervision, and ensures that the key players within the power sector align with the PPI directives.”
Tifase has a positive mindset about the project: “This contract is one important step as part of the development of vital electrification infrastructure that will ensure reliable power supply, remove constraints in Nigeria’s electricity grid, secure additional revenue for investors, and build competent local content and capacity.”
This is not the first time Nigeria has tried to improve its electricity situation. When asked what makes this time different, and why the PPI will succeed where others in the past have failed, the DG of the Bureau of Public Enterprise, Alex Okoh tells The Africa Report: “The fact is that it is clear to all stakeholders that this power problem has to be addressed, there are no two ways about it. The way this project is structured will make all the difference. We are using a reputable company with a brand image and record of doing this kind of thing – and they are to be the single executor of the project.”
He continues: “This time, we are looking at the challenge of the entire value chain. In the past we focussed only on generation, not taking into account the rest of the electricity value chain.”
Siemens and Nigeria: a chequered history
However, this so-called “reputable company” – Siemens – has a chequered reputation in Nigeria.
In 2009, as part of former President Yar’Adua’s fight against corruption, Nigeria cancelled a supply contract and suspended dealings due to allegations that Siemens had given more than $14m in bribes to Nigerian officials. The company paid N7bn rather than face arrest. With the current administration claiming to also be focused on anti-corruption, it then seems strange that Siemens would be the company of choice.
With regards to this reputation, the Siemens MD Tifase agrees that: “Siemens had massive issues globally, but we learnt a lot from that. We divested the problematic telecommunications business, and focused more on electrification.”
In discussing Nigeria’s choice, she believes that: “For the energy sector in particular, we are one of the few equipment manufacturers that has the scale – from generation to transmission to distribution – to provide all the equipment needed. Siemens is the only company in the world that, as a single entity, can provide all those products and services.”
Reassuring us of Siemens change for the better, she adds: “We have pushed for transparency, having numerous meetings with all stakeholders to ensure this. Our reputation in Nigeria has completely transformed over the past decade.”
Nigeria’s power problem, and the solution of privatisation
Despite having over 8000MW of operational power capacity in the country, only an average of about 5500MW actually reaches consumers. This is about a tenth of the power in South Africa, a country with about a quarter of Nigeria’s population.
However, South Africa’s model of power is far from perfect – with a bankrupt state power company. Will Nigeria’s privatised power companies prove that their model works better in the end?
Although Nigeria’s first attempt at privatising power did not result in the resolution of the problems it was trying to fix, Okoh believes that: “Hindsight is 20:20 vision. There were some gaps in the initial privatisation that was done – not enough attention was paid to the capacity of the successor companies to improve the network infrastructure.”
However, for him, “this project will succeed because it has been thoroughly thought through – the gaps in efficiency of how energy flows across the network was looked at, and we are able to correct some of these gaps.”
Tifase promises that Siemens will “continue to do all that is necessary for success – using the best contractors, the highest levels of technology, and the most advanced, robust training programmes.”
On the sidelines, Siemens is also, according to their MD, “working with several anti-corruption groups to eradicate corruption at the sea ports.”
As far as the Minister of Power is concerned, the success of this privatised power plan for Nigeria is the key priority for his tenure in office.
Nigeria’s inadequate power supply means regular blackouts, which hinders the economic development of the country that is often described as having so much (untapped) potential.
Indeed, start-up owners and investors often do not bother to come to Nigeria, as the base supplies they need are not provided by the government to the population, i.e. reliable electricity and access to the internet.
The core issue is the failure of transmission systems and power losses over complex reticulation systems. Raising the operational electricity capacity to 25000MW should power various industries and businesses, and improve access and reliability of power to the general population.
According to Zainab Shamsuna Ahmed, the Minister of Finance of the Federal Republic of Nigeria: “The government loses over $1bn annually due to technical and commercial inefficiencies along the electrification value chain. The PPI will help eliminate these inefficiencies and unlock economic value for the country.”
The three phases
- Focus on essential and quick-win measures to increase the system’s operational capacity to 7000MW and to significantly reduce Aggregate Technical, Commercial and Collection (ATC&C) losses, i.e. the difference between the amount of electricity received by a distribution company from the transmission company and the amount of electricity for which it invoices its customers.
- Siemens will provide general technical training on core competency areas as well as training for employees of Nigeria’s 11 electricity distribution companies, the Transmission Company of Nigeria, and regulators, on all the equipment and software being provided by Siemens.
- Target the remaining network bottlenecks to enable full use of existing generation and distribution capacities, bringing the system’s capacity to 11000MW.
- Develop the system up to 25000MW long-term.
When asked where the additional 14000MW of power will come from, Aliyu says: “The Ministry is already working on legacy generation projects, aligned with the increase to the 25000MW. Some are completed and are we are waiting for infrastructure to be able to evacuate and distribute them. Renewable solar energy is a small part. We also have gas and geothermal options.”
Outcome of PPI?
Siemens has been active in Nigeria since the 1950s, and in addition to major power plants, has also supplied and installed more than 100 small gas turbines and compressors in onshore and offshore oil and gas facilities.
The company will begin pre-engineering works for the transmission, distribution and meter data management systems (MDMS) infrastructure across the country, to enable the development of a functional, efficient and reliable electricity grid system.
The project is expected to create thousands of jobs and create new opportunities for SMEs, which will increase the country’s GDP and boost economic productivity.
The article continues below
Get your free PDF: COVID-19. How Africa can navigate the pandemic
Leaders of all stripes are scrambling to contain the fallout.
Complete the form and download, for free, The Africa Report’s COVID-19 How Africa can navigate the pandemic. Get your free PDF by completing the following form
Based on past experience, Tifase believes that there will be thousands of jobs created directly, and indirectly (contractors, low-scaled labour, electrical/mechanical work) the figure is probably in the tens of thousands.
“Each minister has a mandate given by the President. As part of this, we must create job opportunities and support Mr President to remove from poverty the some 100 million Nigerians suffering,” says Aliyu.
So, as the Ministry of Power implements projects, they have to track how many jobs are being created and how it is helping Nigerians get out of poverty. It is a conscious tracking process.
For Okoh: “Construction is one of the biggest job creators in any community. Construction in this initiative is huge. The civil work involved in the transmission phase speaks eloquently to job creation. In addition, power is of critical importance in growing an economy and creating jobs.”
Minister of Power Mamman believes that: “This significant, timely and high-level intervention between President Buhari and Chancellor Merkel addresses critical infrastructure deficits in the value chain and helps reposition the power sector to become attractive, viable and investable.”
The full series is available as part of a special print edition of The Africa Report magazine: ‘Where is Nigeria (really) heading?’