Nigeria, the largest economy and most populous nation in Africa has faced hindrances to its economic growth due to the absence of a consistent and high-quality electricity supply. Even with an installed power generation capacity of 14GW, there is less than 5GW of operational capacity in the nation’s grid, thereby putting the majority of the 200m population at the mercy of more expensive and polluting alternative generation sources.
Four years ago, the country embarked on a strategic journey to address the longstanding challenges of inconsistent and insufficient electricity supply. This endeavour took shape through the Presidential Power Initiative (PPI), signed in 2019 in collaboration with the German energy firm Siemens AG.
The $2 billion Siemens deal is structured in three phases: to take the country’s grid operational capacity from less than 5GW to 7GW by 2021; increase the capacity to 11GW by 2023, and achieve total operational generation and national grid capacity to 25GW by 2025. It is expected to save Nigeria over $1bn annually.
Back in 2018, when the project was conceptualized, the initial intent was to wrap up the first phase within a span of two years. But as we stand in 2023, there has not been any observable advancement or favourable results accomplished. And even now, Siemens Energy says plans to complete the project will take additional years and be completed in 2030. The reasons for the delay were attributed to the coronavirus pandemic (COVID-19), which disrupted supply chains making the acquisition of raw materials take longer.
Furthermore, another contributing factor is prices volatility, which has caused deviations from their prior benchmarks. Oladayo Orolu, head of business development and government relations at Siemens Energy, explained that the project has been impacted by cost overruns, hindering its timely completion.
“Prices are not at the same level they used to be. In 2020, phase one was projected to cost about €2 billion. Some raw material components costs have been doubled, some are still close to where they used to be, some are just marginally higher,” he stated.
While the above reasons are valid, Nigeria is a low-trust society and many citizens harbour suspicions that there might be hidden factors at play. Similar to previous electricity initiatives, the project has raised concerns about potentially serving as a conduit for corrupt leaders to exploit for personal financial gain. Once, in 2009, as part of former President Yar’Adua’s fight against corruption, Nigeria cancelled a supply contract and suspended dealings due to allegations that Siemens had given more than $14m in bribes to Nigerian officials. The company paid N7bn rather than face arrest.
Also, Siemens undertook a 14.4GW Power project fully synchronized with the grid in Egypt and completed it in a record time of 27 months. Although with a bigger project, Nigeria will take 132 months (11 years) to complete its own. This history contributes to the doubts surrounding the present situation.
Sadly the postponement of the Siemens Power Project has cast a shadow of uncertainty over Nigeria’s economic landscape. The implications of this delay extend beyond the realm of energy and infrastructure, potentially affecting various sectors of the country’s economy. Nigeria is already the country with the largest energy access deficit globally. Now, Nigeria finds itself on a protracted journey towards achieving energy independence.
For a long time, the acute shortage of reliable electricity supply is a longstanding issue that has hindered economic growth and industrial development. The Word Bank said that epileptic power supply costs businesses in Nigeria about $29 billion yearly.
Industries heavily reliant on electricity, such as manufacturing and technology, face increased operational costs due to the need for alternative power sources. This strains an already challenging business environment, hindering competitiveness and expansion.
Most companies, like Coca-cola, Wempco, Nigeria Flour Mills and especially the multi nationals self-generate their power. They have moved away from depending on the national grid. Back in 2016, the expenditure on average for a month amounted to approximately N20.8 billion for such self-generation efforts.
According to the International Renewable Energy Agency (IRENA), 84% of urban households use backup power supply systems such as fossil diesel/ gasoline generators, while 86% of the companies in Nigeria own or share a generator. This intensive and widespread use culminated in making Nigeria the highest importer of PMS and diesel generators in Africa as of 2022.
To run these generators does not come cheap. Nigerian households and businesses spend a whopping $22 billion annually to fuel generators powering their homes and business. Once, top listed firms by market capitalisation, including Dangote Cement, BUA Foods, Guaranty Trust Holding Company (GTCO), and Zenith Bank, expended N207.54 billion on energy. Given that the fuel utilized to operate prevalent energy source generators has experienced an increase of over three times, and with the likelihood of further hike, this expense is set to reach heights imaginable heights by the year-end.
However, the far-reaching consequences are not limited solely to surging energy costs. Epileptic power also contributes to an industrial exodus from the nation and further acts as a deterrent to foreign direct investment. Numerous industries have purportedly been compelled to cease operations and relocate from the country due to severe power supply issues.
After about 50 years of operation, Michelin and Dunlop tyre companies in Nigeria closed down operations as a result of reasons including the epileptic power supply being experienced over the years in the country. Upon exit, more than 10,000 employees were unfortunately laid off. One of the ripple effects of shutting down business operations.
In the past five years, over 50 companies reportedly shut down operations due to forex, and power crises within five years. This sends a bad signal to potential investors, especially manufacturers. The prospect of having to allocate profits towards power generation is unappealing for any business owner.
The Siemens project postponement is occurring during a crucial period for Nigeria. As we discussed earlier this week, the Kainji Dam, which supplies a significant portion of Nigeria’s hydropower, relies on the water from the Niger River to turn its turbines. However, the recent coup in Niger and the eventual completion of the Kandadji Dam could potentially impact the long-term stability of this arrangement. Already 85 million Nigerians (43% of the population) do not have access to grid electricity. This situation has the potential to deteriorate even further.
Achieving a stable electricity supply in Nigeria appears to be a distant goal. At this juncture, the government should focus on intensifying its efforts to enhance energy availability within the country. And this should involve a comprehensive push for the extensive development of renewable energy sources.