- This agreement, aimed at delivering energy for the greater benefit of the Nigerian people, has now been elevated to a new level
The Presidential Power Initiative (PPI), which most Nigerians currently refer to as the Siemens Project, elicited controversy from inception. While stakeholders in the Nigerian Electricity Supply Industry (NESI) describe it as a ‘one man deal’, others tout it as ‘project for project sake’. Although the make – believe announcement was that it was consummated to increase electricity supply in Nigeria from 4,500MW to 25,000MW through three phases of various projects by 2025. Essentially, the project was targeted at delivery of 7,000MW in 2024 in the first instance. That year is now in sight.
Recalling the urgency to address the energy gap in the country, measures to bridge it were actively pursued. On August 31, 2018, in Abuja, the Presidential Power Initiative (PPI), formerly known as the Nigeria Electrification Roadmap, was established through collaboration between Nigeria and Germany. This initiative took shape during a visit by the German Chancellor, Angela Merkel, and her business delegation, which included Joe Kaeser, the CEO of Siemens AG. The agreement aimed to explore cooperation between the two nations in resolving challenges in the power sector and expanding capacity to meet future power needs. Siemens Energy played a key role in facilitating financing for the project through the German Export Credit Agency (Euler Hermes AG), other ECAs, and additional financing agencies.
Siemens Energy was brought on board to assess the situation in Nigeria’s power sector, and alongside other stakeholders – from Nigeria’s Ministry of Power, Bureau of Public Enterprise (“BPE”), Nigeria Electricity Regulatory Commission (“NERC”), Transmission Company of Nigeria (“TCN”) and Electricity Distribution Companies (“DisCos”) – decided the immediate priority is to close gaps in the system by enhancing the transmission and distribution segment of the power sector.
The Presidential Power Initiative (PPI), also known as the Siemens Project, sparked controversy from its inception, drawing varied opinions within the Nigerian Electricity Supply Industry (NESI). Some stakeholders criticise it as a ‘one-man deal,’ while others view it as a ‘project for project’s sake.’ Despite claims that the initiative aimed to boost electricity supply in Nigeria from 4,500MW to 25,000MW by 2025 through three phases of projects, scepticism persists.
Initially proclaimed to deliver 7,000MW by 2024, the project’s implementation has faced scrutiny. Formally established as the PPI on August 31, 2018, during a visit by German Chancellor Angela Merkel and Siemens AG CEO Joe Kaeser, the collaboration between Nigeria and Germany sought to address challenges in the power sector and enhance capacity for future needs. Siemens Energy, tasked with assessing Nigeria’s power sector, collaborates with stakeholders, including the Ministry of Power, Bureau of Public Enterprise (BPE), Nigeria Electricity Regulatory Commission (NERC), Transmission Company of Nigeria (TCN), and Electricity Distribution Companies (DisCos). The immediate focus is on strengthening the transmission and distribution segments to address gaps in the power system. As the project aims to deliver 7,000MW by 2024, the approaching year raises questions about the initiative’s progress.
After extensive reviews and engagements on technical and commercial considerations involving representatives from TCN, NERC, BPE, the Ministry of Power, and all DisCos, the implementation agreement for the Siemens Project was signed in Abuja on July 22, 2019. The signing ceremony included President/CEO of Siemens AG, Joe Kaeser; Head of Strategy, Technology & Innovation, Industrial Applications Division at Siemens Energy, Onyeche Tifase; and Director General/CEO of Bureau of Public Enterprises, Alex Okoh, in the presence of President Muhammadu Buhari. However, despite the outlined narrative, some critics assert that the late Chief of Staff, Abba Kyari, unilaterally initiated and finalized the Siemens Project, with limited input from the Ministry and stakeholders in the Nigerian Electricity Supply Industry (NESI). During a recent workshop, Barrister Kunle Olubiyo, President of Nigeria Consumer Protection Network, expressed dissatisfaction with the project’s implementation, suggesting that Kyari solely initiated it and that the project is currently facing challenges.
Olubiyo voiced concern over Siemens’ refusal to declare force majeure despite project setbacks. He pointed out that the contractor’s delays coincided with a surge in equipment prices, leaving the project in a state of uncertainty. His words: “Look at the Siemens Power Project. It was put together by the former Chief of Staff without the deep involvement of the ministry. It was not put together by the experts in the power sector. And what we have now is that there has not been any force majure, the rates of the equipment are increasing and contract is nowhere. It is neither here nor there.”
Besides COVID-19, which significantly impacted the global economy and timelines, confidential sources within the industry disclosed last year that six months after signing the project, the government failed to fulfill its promise of releasing funds for its commencement, a major setback for the project. Additionally, when the much-anticipated 10 mobile substations arrived in the country at the end of 2022, several months passed before the Nigerian Electricity Management Services Agency (NEMSA) was tasked with inspecting and certifying the equipment.
Due to the challenges in project implementation, on December 1, the Federal Government consolidated the effort with a renewed deal with Siemens, following up engagements by Bola Tinubu with the German government. The recent agreement, presided over by President Bola Tinubu and German Chancellor Olaf Scholz in Dubai, UAE, aims to increase the national grid by 12,000MW. However, the reasons for lowering the target from the initial 25,000MW in 2019 remain unclear. This adjustment may reflect considerations of the initial project’s feasibility and a realistic assessment of the current situation.
During the signing ceremony, Federal Government of Nigeria Power Company Managing Director, Kenny Anue, represented the Nigerian government, while Nadja Haakansson, Managing Director (Africa) of Siemens AG, signed on behalf of the company. Anue highlighted that the Presidential Power Initiative (PPI) design incorporates support from partners Siemens Energy and financiers backed by the German government. Anue, addressing Tinubu, stated that the German government has nominated the mandated lead arrangers and financiers. He further mentioned that Siemens Energy successfully delivered 10 units of power transformers and 10 units of mobile substations. Joe Kaeser, Chairman of Siemens Energy Supervisory Board, in his remarks, traced the project’s history back to the Muhammadu Buhari administration in 2018. He expressed satisfaction that both parties have now been able to advance the process. On the fresh agreement, he said, “Now, after five years, I’m really happy that this agreement which has the spirit of supplying energy to the greater good of Nigerian people has been taken to new level. Thank you very much for doing that. And as we say in Germany good things take time as we have seen tonight.”
Speaking on the project, the Minister of Power, Adebayo Adelabu, said the target of the PPI is to add 12,000mw of electricity to the national grid. He said with the signing on Friday, the process will now proceed apace to ensure constant supply of electricity to Nigerians. He said: “Of course, we knew that there were a lot of delays between 2018 and now that we have not really made significant achievement in terms of proceeding with the contract signed in 2018 because of a lot of factors, some were natural, some human, some were processes.
“We also had COVID in 2020 which made the execution of the project slow. But now, it shows that we are now ready to move forward with the Siemens projects. It shows a commitment between the governments of both countries to proceed with this project, which we believe will go a long way in improving the performance of the power sector in Nigeria. This is an agreement that has to do with end-to-end fixing in terms of grid stabilisation of the entire transmission grid in the Nigerian power sector, which will eventually improve the power supply in terms of regularity, in terms of functionality and in terms of affordability in the years to come. We’re very happy that we’re able to sign this agreement tonight. And in the next couple of months we will witness a lot of activities on the presidential power initiatives project.”
On the financial implications, he revealed that project is to be financed under the Government export credit facility that is being provided by a couple of German banks to Nigeria. He stressed that “The original agreement we had was for $2.3 billion. But what we have is up to date, just in region of $60 million, which has to do with the importation of the 10 transformers and the 10 power mobile substations, which Siemens have delivered to the country. They have been commissioned and we are in the presence of installation of these transformers. So far, it has cost us $60 million dollars.”
Adelabu, the relatively new minister in charge, provided a vague explanation of the contract, notably silent on the fate of the initial 25,000MW target and why expectations are diminishing at a higher cost. The viability of this new agreement may be questionable unless the Federal Government adopts a comprehensive solution to the challenges within the Nigerian Electricity Supply Industry (NESI). As of now, the industry boasts an installed generation capacity exceeding 12,000MW, with the last simulation indicating a transmission capacity of 8,500MW and distribution reaching no more than 4,700MW. According to the Independent System Operator of the Transmission Company of Nigeria (TCN), as of December 2, 2023, the Grid Performance Dashboard reported Peak Generation at 5,114.90MW, Off-Peak Generation at 4,322MW, and Energy Sent Out at 4,621.815MW. The disparities in these figures underscore the existing challenges in the power sector that need a comprehensive resolution for sustainable progress.
According to the Nigeria Electricity Regulatory Commission (NERC), the second quarter of 2023 witnessed a -5.17% decline in total electricity generation, falling from 9,350.24GWh in the first quarter to 8,867.05GWh. This decline is attributed to reduced available generation capacity due to mechanical faults and gas constraints affecting gas-fired thermal power plants. Additionally, hydropower plants faced challenges from unscheduled maintenance, shutdowns, and water management issues stemming from dam reserve depletion. The current challenges in the electricity market, as highlighted by NERC, indicate that injecting another 12,000MW from the Siemens project may not significantly increase the supply unless the government addresses existing issues. The new Electricity Act and the demand for increased energy supply, especially from industrial sectors like the Manufacturers Association of Nigeria (MAN), emphasize the urgency for a solution. Some industrial clusters, such as Agbara, have opted out of the national grid due to unreliable power supply.
The sector grapples with commercial and technical constraints, including the lack of cost-reflective tariffs, identified by players in the distribution and generation segments as a major issue. The frozen Multi-Year Tariff Order (MYTO) limits the revenue collections of the 11 electricity Distribution Companies, hindering their ability to invest in equipment and service delivery. The question arises: Where will DisCos raise funds to enhance performance with the 12,000MW underway?
Furthermore, the government needs to address the salient question of whether it plans another power sector intervention to bridge the investment gap. There is also the consideration of applying the Eligible Customer policy to facilitate the sale of power directly to willing industrial buyers, bypassing DisCos in the process of wheeling power to these customers. The resolution of these issues is crucial for the success of the recent agreement with Siemens and the substantial increase in electricity supply. A holistic approach is necessary to ensure the effective implementation of the Siemens project and alleviate the persistent challenges in the Nigerian Electricity Supply Industry (NESI).
