Is government having an overbearing influence on the power sector?
In the last few weeks, the Central Bank of Nigeria (CBN) has issued a directive authorising banks to ring-fence collection accounts of electricity distribution companies (DisCos), now it is leading the implementation of a national metering plan raising concerns that it is having an overbearing influence on the sector.
On the flip side, in the last five years alone, the CBN has provided over N1.3trillion in bailout funds for the troubled power sector. So the bank believes it has a right to a say. The concern is that it may be displacing the regulator even though it lacks the requisite technical knowledge to regulate the sector.
“In recent times, the CBN seems to be dictating certain important developments in the power sector, with very little inputs from other key stakeholders such as the Ministry of Finance and the NERC as the power sector regulator,” said Chuks Nwani, an energy lawyer.
Some see its intervention the Presidential Metering Initiative as an example.
The Bulk Procurement of 6.5 million Meters which the government negotiated with labour unions, will cost US$405 million. The World Bank is providing US$200 million while the CBN will provide a balance of US$205 million.
The scheme will be handled in three phases. In the first phase, there will direct financing of all meters ready for quick deployment including meters at the ports, those in-country available stock, committed orders by MAPs between September 2020 and April 2021.
In the second phase, the CBN financing and procurement targeted exclusively to local manufacturers and assemblers will be concluded in the fourth quarter of 2021. The last phase would be the World Bank International procurement which gives a 20 percent buffer allowance to local manufacturers to order to improve their competitiveness and encourage joint ventures with local companies by December 2022.
The CBN will provide funding in the first two phases and some analysts fear that the CBN’s intervention without a framework designed by the regulator may imperil the metering plan.
Though the Nigerian Electricity Regulatory Commission (NERC), the ministries of Finance and Power among other stakeholders were at the meeting where this plan was discussed, sources privy to the discussion said the CBN is acting as a super-regulator, with widening influence over the sector.
According to the Federal Government, the Presidential Metering initiative was created due to the inability of local meter manufacturers assemblers to meet immediate demand for prepaid meters. This informed the suspension of the 35percent levy on meters.
Some meter manufacturers say they can close the metering gap estimated at 6.5million. There are currently nine-meter manufacturing firms in the country with a capacity to produce about 100,000 meters monthly according to operators.
“We can close the metering gap in less than 5 years,” said Yahaya Yahaya, company secretary of Momas Electricity Meters Manufacturing Company Ltd (MEMMCOL), a local meter manufacturing outfit.
But it is doubtful consumers are willing to wait that long. The absence of meters and the consequently estimated billings constituted over 65 percent of customer complaints against DisCos. Providing meters is one way the government is trying to placate customers over the tariff review an indication that an immediate solution is required.
Yet the CBN says it will only fund local meter manufacturers and assemblers, a decision some industry operators say could derail the plan. When the regulator announced its Meter Assets Provider (MAPs) Policy in 2018, in recognition of the country’s manufacturing challenges, allowed both manufacturers and importers of fully built meters or semi-built meters to participate.
The challenge with the CBN’s rule according to some operators is that it is discriminatory against MAPs who are already fulfilling the terms of their respective contracts based on a valid MAP regulation by NERC. This could become litigious as excluded players may perceive it as giving an unfair advantage to their peers.
It could create the risk of DisCo collusion with local meter manufacturers like it happened in the CAPMI metering scheme, where despite advance payment for meters, many customers were not eventually metered, and their funds also not returned. Already local manufacturers say standards presented by different DIsCos are not uniform which is raising their operational cost.
It is possible that the CBN intervention could leave DisCos with more debts on their books as it is not clear who will bear the cost of procuring the meters.
DisCos and electricity customers are already impacted by the N213 billion intervention by the CBN under the Nigeria Electricity Market Stabilisation Facility (NEMSF) and the N701 billion Power Sector Payment Assurance Guarantee, which form part of the high retail electricity tariffs being paid by electricity customers.
Worse still, CBN’s intervention in the power sector has not led to sustainable solutions. The N213 billion NEMSF was supposed to put the power sector on a part of full recovery and transition the power sector into the transitional electricity market (TEM). It could not achieve this hence the apex bank committed to the N701billion Power Sector Payment Assurance Guarantee.
Even the CBN is feeling the strain as their interventions have led to a situation where the power sector is privately owned but nationally financed. “You cannot use financial engineering to solve an economic problem,” said Ebipere Clark, a special assistant to the Central Bank Governor on Power during a webinar organised by PwC Nigeria in April.
While the CBN has good intentions, analysts say that perhaps the manner in which it designed some of the interventions may not have been optimal. Worse still, it is feeding the impression that regardless of the actions of the operators, the government will bail them out.
Governments often bail out troubled institutions as the US government did to the financial sector in 2008 “But the nature and structure of the proposed CBN intervention in metering needs to be guided by the NERC with inputs from respective stakeholders, so as to avoid a failure of such metering intervention, which would be a huge loss to electricity customers and tax-payers,” said Nwani.
Nwani further said that such metering intervention should not be included as part of the MYTO retail electricity tariffs, so as to isolate the repayment of the CBN intervention from both tariff and political risks. The recent two weeks’ suspension of the service reflective tariff by NERC under political duress, buttresses this point.
This is why some operators have called on the government and regulator to support both MAPs and local meter manufacturers/meter assemblers with low cost, long term financing, and fiscal incentives for speedy bulk importation of both fully built prepaid meters and meter components for local assembly of prepaid meters.
The proposed N200 billion intervention amount by the CBN will not completely fund the existing metering gap. Hence, any strategic intervention in metering by the CBN and Federal Government should be focused on how to develop bankable and commercial financing structures that would enable meter asset providers and investors to fund both the present metering gap and future prepaid meter roll-outs to electricity customers, without recourse to sovereign borrowings from the World Bank.
The MAP Regulations by NERC presents this bankable framework and should not be jettisoned by the CBN as it plans the intervention in metering, some operators say.