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By the end of 2018, Egypt will have the capacity to export electricity once it completes construction of its 14,400MW power plants making the country an electricity transfer and circulation regional hub. The country is breaking records with the speed with which it is able to add power to the national grid, an approach that is quite different from the ‘incremental method’ being adopted by Nigeria.
Meanwhile, Nigeria is still stuck with 12,000MW name plate capacity, but is only able to generate an average of 7,000MW and even distribute less. Many power plants lie idle six years after attempts to privatise them started. The country has only been able to add about 8,000MW of name plate capacity in about 19 years since 1999. However, actual generation has not changed much over period.
In 2015, Egypt signed a memorandum of understanding with Siemens for a master plan to strengthen and develop the electricity grid until 2025.
German Chancellor Angela Merkel, Egyptian President Abdel Fattah El-Sisi, Siemens CEO Joe Kaeser and other high-ranking representatives witnessed the symbolic inauguration of the first phase of Siemens’ megaproject in Egypt on March 2, 2017.
Working together with local partners, Orascom Construction and Elsewedy Electric, Siemens has broken all records in modern power plant construction by connecting the first 4,800MW of new capacity to the Egyptian national grid in only 18 months after the signing of the contract for the company’s biggest single order ever.
According to information on Siemen’s website ‘When completed 2018, each of the three power plants, located at Beni Suef, New Capital and Burullus, is set to become the biggest gas-fired combined-cycle power station in the world. Altogether, the three power plants will have a combined capacity of 14,400 MW.
“Critical success factors for the project is in the planning, the structuring of the deal and the availability of a functional market,” says Chuks Nwani, energy lawyer and vice president PowerHouse International. “This is what has been lacking in Nigeria’s quest to build power plants, you need a market.”
The Federal Government opened itself for such accusation by its decision to interfere with electricity pricing rather than allow market forces determine pricing.
Even when gas prices, inflation and exchange rate, key determinants of tariff have changed, the federal government prevented the Nigerian Electricity Regulatory Commission (NERC), which acts more like an appendage, from allowing electricity distribution companies (DisCos) to review tariffs.
Meanwhile, in Egypt, the citizens had to swallow a bitter pill. Currency devaluation, deregulation and other tough economic prescriptions have been applied to create a more market friendly environment. In the country’s 2018 budget, its finance minister has already proposed slashing electricity subsidy by 48 percent and fuel subsidy by 19 percent.
An enabling market environment is why Egypt could attract a financing package for the Siemens’ part of the €6bn contracts, which was structured by Siemens Financial Services (SFS) and includes a tailored guarantee concept.
The plan includes providing solutions along the electricity value chain taking into cognisance the country’s capacity to generate power from coal, nuclear, and renewables and the market. This will boost electricity generation in Egypt by 50 percent.
Nigeria’s programme to privatise 10 National Integrated Power Plants (NIPPs) initiated during the administration of former president Olusegun Obasanjo began two years earlier than Egypt’s power project but it is yet to see much progress.
The financial offers for the NIPPs were made in 2013 and since then, the plants have suffered depreciation. The preferred bidders want the sale mechanism to factor this depreciation, loss of value and time-frame for repairing them in purchase negotiations, but cash-strapped Federal Government wants to get its hands on the money as quickly as possible.
Consequently, the preferred bidders and the Niger Delta Power Holding Company (NDPHC), managing the plants have structured the terms so that the bidders pay 30 percent of the bid prices upfront while deferring the balance (over a 15 year period) until the market attains financial stability.
The bidders say this will mitigate risks of stranded investments or government default. Nigeria is yet to give the green light.
But even this proposal comes with its own problems.
Wolemi Esan, partner at the law firm of Olaniwon Ajayi LP had earlier told BusinessDay that such renegotiation may prompt the reserve bidders and even the other unsuccessful bidders for the NIPP assets to consider this change in payment terms as an attempt by government to relax the rules in the middle of the process.
“Such unsuccessful bidders may legitimately challenge the renegotiation on the ground that they would have bid differently if they were aware that NDPHC was going to grant a significant concession on the payment terms,” Esan said.
This disagreement, along with lack of firm gas supply, inadequate transmission evacuation infrastructure, and in some cases, non-completion of the NIPPs has stalled the project.
Some progress has been seen in the construction of Gbarain, Egbema, Alaoji and Omoku but they still fall short.
In February 2015, former president Goodluck Jonathan while commissioning the 750MW, four-gas unit of Olorunsogo II power plant in Ogun state, said Nigerian had spent $8.26 billion on the NIPPs.
“In the next two years, electricity will be taken for granted in Nigeria, as in other countries,” Jonathan said.
However, three years later, electricity is still a fundamental issue in Nigeria.
Manufacturers say 40 percent of their production cost goes to power.
Shortfalls in the electricity market is over N1trillion, DisCos still bill customers upon a brutal exercise of discretion and power generation companies (GenCos) are locked in a legal battle with the Nigerian Bulk Electricity Trading Company over settlement of their market invoice.
But in Egypt Siemens will also deliver up to 12 wind farms in the Gulf of Suez and west Nile areas, comprising around 600 wind turbines and an installed capacity of 2GW.
The deal is being done with cooperation of local partners Orascom and Elsewedy Electric and will serve a market of over 45million people.
Nigeria has a population of 198 million people with GDP of $405 billion. Egypt is Africa’s third largest economy with GDP of $336 billion and a total population of 98 million people, less than half of Nigeria’s population.
Egypt in 2016 agreed to a $12bn loan package from the International Monetary Fund under which it committed to phasing out energy subsidies in three years, introduced valued added tax on a wide range of goods and devalued the pound. Nigeria, has declined to introduce similar reforms, considering it too painful a pill to swallow.
ISAAC ANYAOGU
