November 1, 2023/CSL Research
Based on news reports, the Minister of Power, Mr. Bayo Adelabu said the Federal Government plans to review the Siemens power deal with Nigeria, which was expected to increase power supply from the current 4,000mw to 25,000mw by 2025.
He, however noted that the part of the agreement which requires the importation of mobile stations and transformers had been fulfilled, and will raise the capacity of the Transmission Company of Nigeria (TCN) by 1,300mw. The deal was agreed to be a three-phase project. Phase one was to improve the country’s transmission capacity from 5,000 to 7000mw. Phase two was to take it to 11,000mw, while phase three will take it to 25,000mw over a period of seven years. However, the covid pandemic and the political transition stalled the project.
We recall that on 22 July 2019, Nigeria and power giant Siemens signed a power sector deal which would lead to the production of 25,000MW of electricity in the country by 2025. At the meeting between the presidency and the management of Siemens, the president set a goal of achieving 7,000MW and 11,000MW of reliable power supply by 2021 and 2023 respectively.
The agreement was a fallout of Angela Merkel’s visit to Nigeria in 2018 which led to the submission of the Nigerian Electrification Roadmap. Notably, the agreement incorporates fixing Nigeria’s archaic transmission grid and distribution infrastructure.
Despite the privatisation exercise that was carried out in 2013, the fortunes of the nation’s power sector are yet to experience a turnaround as the investors that emerged from the unbundling of Power Holding Company of Nigeria (PHCN) are still grappling with the agelong problems that have plagued the sector.
Insufficient gas supply, weak transmission infrastructure, absence of cost reflective tariffs and poor metering systems have remained largely unresolved. In recent times, the collapse of the national transmission grid has become a recurring theme.
Over the years, the widening deficiency in on-grid supply of power has forced consumers into costly off-grid alternatives, which account for 52% of electricity consumption, based on IMF estimates. Clearly, a lot of work is required in improving the supply of power across the country and ensuring its availability to unserved and underserved households and businesses.
We believe the Siemen’s deal may be a game changer for the sector, but we are concerned about Siemens’ position in the power value chain remains given the huge investment it is committing to make. Currently, the Transmission Company of Nigeria (TCN) is 100% owned by the government while the Gencos and Discos are privately controlled.
While, we see a possibility of Siemens getting a stake in TCN, we struggle to see how that will work for the discos and gencos given that Siemen’s huge investments may mean they have to cede control. Also, government’s desire to maintain a stranglehold on the power sector in bid to regulate electricity tariffs remains a key risk to any investment in the sector. We are also sceptical on Siemen’s ability to recoup its investment given that the liquidity squeeze in the sector attributable to non-cost reflective tariffs remains unresolved.
