Yemisi Izuora
A deal between the federal government and the German government to debottleneck Nigeria’s electricity transmission facilities could be be delayed for about five years, the global energy systems firm has said.
Oriental News Nigeria, gathered that Siemens Energy has initiated a review of its wind business after taking a large hit to earnings and expected full-year revenues and profits due to problems at its unit Siemens Gamesa, one of the largest wind turbine makers in the world.
“Our third-quarter results demonstrate the challenges in turning around Siemens Gamesa,” Christian Bruch, President and CEO of Siemens Energy AG, said in a statement on the company’s results for the third quarter of the fiscal year 2022/2023 that ended on June 30, 2023.
At the end of June, Siemens Energy withdrew the profit guidance for the company due to problems with wind turbines by Siemens Gamesa.
“This is a disappointing and severe setback,” Siemens Gamesa chief executive Jochen Eickholt told reporters on an ad hoc call then.
In today’s Q3 earnings release, Siemens Energy said that its result before special items was a loss, driven by charges at Siemens Gamesa totaling $2.4 billion (2.2 billion euros). The charges relate mainly to quality issues of certain onshore platforms as well as increased product costs and ramp-up challenges in the offshore business.
“Following a substantial increase in failure rates of certain wind turbine components, an extended technical review suggested that significantly higher costs will be incurred than previously assumed to reach the targeted quality level. The other charges mainly relate to increased product costs and ramp-up challenges in the offshore business,” Siemens Energy said.
“Due to the developments at Siemens Gamesa, Siemens Energy is reviewing the current strategy and action plan in the wind business. Details of this strategic plan will be presented at the Capital Markets Day in November,” the company added.
As a result of the charges and wind turbine issues at Siemens Gamesa, Siemens Energy Group now expects its FY 2022/2023 net loss at $4.94 billion (4.5 billion euros), about four times higher than the previously expected loss. Free cash flow pre-tax is expected up to a negative low triple-digit million euro amount, compared to a previous guidance of positive up to a low triple-digit million euro amount.
Formers President Muhammadu Buhari about five years ago, met with the then German Chancellor, Angela Merkel and initiated the deal to overhaul and increase the operational transmission and distribution capacity of the power grid.
The agreement was basically meant to include the rehabilitation, upgrade and expansion of transmission and distribution networks and to improve power generation in three phases.
The first phase was to raise power supply to 7,000mw by 2021; and then increase it to 11,000mw in 2023 and thereafter push it to 25,000mw from 2025.
A Bloomberg report said that although Siemens Energy AG expected to complete an overhaul of Nigeria’s dilapidated power infrastructure , it will now happen five years later than originally planned, due to delays caused by the coronavirus pandemic.
The German engineering company, which was contracted by Africa’s most populous nation four years ago to rehabilitate and expand Nigeria’s electricity grid by 2025, will now only conclude the project in 2030, Oladayo Orolu, Head of Business Development and Government relations at Siemens Energy told Bloomberg in an interview.
The three-phase project was set back by delays in starting the first phase, he said.
“When we conceptualised this project in 2018, our plan was within two years we should be done with phase one, but then Covid happened,” disrupting supply chains, which meant getting raw materials took longer than before, Orolu added.
The report said the delay is a blow to Nigeria President Bola Tinubu’s reform agenda. The president, who took office in late-May, pledged to make electricity more accessible and affordable in the nation, where more than 40 per cent of its population lack access to power and face constant blackouts.
In 2020, the World Bank estimated the economic cost of power shortages in Nigeria at around $28 billion – equivalent to 2 per cent of its gross domestic product. The delays are also likely to cause cost overruns.
“Prices are not at the same level they used to be,” Orolu said during the interview. “Some raw material components costs have been doubled, some are still close to where they used to be, some are just marginally higher,” he said. In 2020, phase one was projected to cost about €2 billion.
Orolu said he expects electricity output to increase by an additional 2,000 megawatts at the completion of phase one by 2025.
“The objective of phase one is to do quick fix projects that will free up 2,000 megawatts, we currently have 5,000, we are looking at taking that to 7,000,” he said.
The West African nation has an installed capacity of more than 13,000 megawatts, of which a daily average of about 3,400 megawatts is dispatched to consumers due to a poor transmission and distribution network.
The partnership with Siemens will modernise the existing network before enlarging it until the country can produce and distribute 25,000 megawatts.
Following a groundswell of enquiries recently, the Managing Director of FGN Power Company, the Special Purpose Vehicle (SPV) for the execution of the project, Mr Kenny Anuwe, said that 80 per cent of equipment needed for the pilot project was already available in-country.
Stressing that the project remained on course, Anuwe reiterated that the initiative for Phase 1 was underway and had recorded notable successes.
“FGN power company has received delivery of about 80 per cent of the equipment for the pilot projects, which are being deployed to critical sites across the country to improve power transmission capacity.
“Some of the sites include Apo, Ajah, Okene, Nike Lake, Kwanar Dangora, Maryland, Omouaran, Ojo, Amukpe, Ihovbor, Potiskum, Birnin Kebbi, amongst others,” Anuwe said in a statement.
