Power & Energy | |
Power & Energy | |
1980 VIEWS | |
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Monday, July
22, 2019 12:29PM / CSL Research / Header Image
Credit: Asorock
Yesterday,
news filtered into the local media that Nigeria and power giant Siemens have
signed a power sector deal which would lead to the production of 25,000MW of
electricity in Nigeria 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. This agreement is said to be an
outcome of Angela Merkel’s visit to Nigeria in 2018 which led to the submission
of the Nigerian Electrification Roadmap last year. Furthermore, the agreement
includes fixing Nigeria’s archaic transmission grid and distribution
infrastructure.
We
laud this agreement as a major step towards resuscitating a fast deteriorating
power and energy sector. The focus of the project across the power value chain
is particularly a major positive given Nigeria currently has a power generating
capacity of about 13,000MW but has never reached 50% utilisation capacity with
peak power generation of 5,222MW. Added to this, an archaic transmission system
which has recorded countless collapses this year results in significant
transmission losses.
That
said, we have concerns around Siemens’ position in the power value chain given
the huge investment it is committing to make. The Transmission Company of
Nigeria (TCN) is currently 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 invesments may mean ceding control to them. Also,
government’s desire to maintain a stranglehold on the power sector in bid to
regulate electricity tariffs remains a key risk.
In
addition, we note that the key challenges for transmission and distribution
segments of the power value chain includes archaic transmission grids and
inadequate metering both of which have hampered realizing value for power
generated. Solving the metering conundrum would require investments in meters
for each consumer unit. We note that Siemen’s ability to recoup its investments
may require not only an increase in tariffs but also a change in the method of
calculating tariff to include a surcharge.
Considering
Nigeria’s perennial romance with failed power projects however, we have decided
not to get too optimistic so soon. Projects such as the National Independent
Power Projects (NIPPs), Privatisation of value chain segments etc. have failed
woefully over the years gulping trillions of Naira. This appalling history
justifies pessismism about this new project. However, significant foreign
participation this time around may be the game changer.
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