Home > Electrical/Electronics > The Siemens’ Deal: FG Pays Over 8 Billion Naira Even As Total Cost Of Project Is Unknown

The Siemens’ Deal: FG Pays Over 8 Billion Naira Even As Total Cost Of Project Is Unknown

In July 2019, the Federal Government (FG) and Siemens signed a Letter of Agreement on the Nigeria Electrification Roadmap (NER) after the President and the German Chancellor, Angela Merkel met on August 31, 2018, in Abuja. The three-phase project seeks to harmonise the available capacity in the electricity supply value chain from its current state of about 3,000MW to 25,000MW over a 6 year period. Some 23 transmission and 175 distribution projects in specific franchise network areas have already been identified. In addition, the project will involve a technology oriented escrow metering system that allows stakeholders to have visibility of payments and financial flows in the Nigerian Electricity Supply Industry (NESI) when it is completed.

On 23rd July, 2019, just a little over a year ago, the FG signed an MOU with its German counterpart to deliver this project. This MOU was tagged the Presidential Power Initiative (PPI). For various reasons, the impact of the coronavirus pandemic no less, death of the late Chief of Staff to the President, Abba Kyari, and more, the project could not take off. However, the Federal Executive Council (FEC) on Wednesday 29th July, 2020 approved the payment of €15.21 million (N6,940,081,465.20) and N1.708 billion, the offshore and onshore components respectively, as part of Nigeria’s counterpart funding for the power deal with Siemens AG, signed by the Nigerian and German governments in 2019.

In Naira terms, the total amount approved is N8,648,081,465.2.

The issue here is that the total cost of the project is yet unknown. Hence, this is a part payment. Recall that in May 2020, the same 1.7 billion Naira being approved by FEC was authorised for payment directly to Siemens AG. Hmmmm! This runs the risk of a white elephant project. At the end of the day, Nigeria will play into the hands of their technical partners as this is a lack of proper project management. For the umpteenth time, we wish to say categorically that the successful implementation of this project depends on constituting a project management team led by seasoned power engineers and other technocrats.

The German government, through Euler Hermes, is determined to cover 85 percent of the project cost (which is yet to be determined) with a moratorium of two to three years and a 12-year loan repayment period.

The issue here is that the Federal Government is taking the loan from the German government with the plan to on-lend this to the distribution companies (DisCos) as a convertible loan facility. However, there is no agreement yet with the DisCos on the rates approved by the FG on the cost of items of plant in the yet to be sighted contract document. By planning to work with the DisCos to structure an appropriate loan agreement after close out on this initial phase of the process, the country bears a huge risk similar to the one executed during the privatization in 2013 and other similar signed contracts, some in Chinese mandarin, over the last 2 decades – PPAs signed with generation companies (GenCos), the Azura and P&ID cases readily come to mind.

Saying that, the relationship between FG and the Discos has been that of cat and mouse lately. Government earlier planned to provide a separate loan facility to the DisCos in a well discussed distribution expansion programme (DEP) in 2017. However, the government had a change of mind and decided the project was to be handled, for and on behalf of theDisCos, by the transmission Company of Nigeria (TCN). The DisCos kicked against the move. Then the government set up a committee to review the ownership and operation of the DisCos since they took over the national assets. This threw up the recommendation to have a forensic audit of the operations of the DisCos to date. The DisCos have since then taken the government to court. How the government and the DisCos will sit together comfortably to forge partnership on the NER project while having a pretty much open case in court is yet to be seen.

The Nigerian Electrification Roadmap (NER) project aims to address the intractable problems that have bedevilled the NESI over a period of 6 decades. Only a properly constituted project management team based on merit, integrity and competence can lead us to Eldorado.

Contributor: Engr Idowu Oyebanjo, CEO of Idfon Power Engineering Consultants (iPEC) Limited

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