Development financing offers path to metering all electricity customers

With over N40 billion monthly loss due to poor collections by power distribution companies (DisCos), mass metering of every electricity user can cut down losses and multilateral institutions are best positioned to provide financing, experts say.

With the right conditions, multilateral organisations like development banks can provide long-term, naira financing needed to fund universal metering for all electricity users, said Kester Enwereonu, director at Enugu DisCo.

“Nigeria can float a special bond by the Debt Management Office (DMO) with repayment from electricity customers over an extended repayment programme of 10 years over the life cycle of the bond,” said Enwereonu.

A bond with a 10-year maturation in local currency will remove the obligation to pay outright for meters and spread the cost over a long period, with as little N500 monthly contribution from customers.

Rolake Akinkugbe-Filani, managing director at EnergyInc Advisors, at the BusinessDay digital dialogue with the theme ‘A National Conversation: Mapping Nigeria’s Response to COVID-19’ on Wednesday alluded to the efficacy of long-term, local currency financing for projects in the energy sector.

“We need a single-digit long-term financing in local currency which our market is still, unfortunately, playing catch-up with,” Akinkugbe-Filani said.

Bruised by non-performing loans to the energy sector, commercial banks in Nigeria have a very low appetite for lending to the sector, leading experts to call for other funding sources including pension funds and the bond market.

DisCos say Nigeria’s metering gap is higher than the 6.5 million reported by the Nigerian Electricity Regulatory Commission (NERC). Considering that there are over 20 million houses and facilities connected to electricity network in the country and just 4 million customers are in the books of DisCos, the metering gap appears closer to over 16 million.

However, the cost of meters had gone up by over 20 percent from N36,991.50 to N44,896.17 for single-phase meters and from N67,055 to N82,855 for three-phase, so to procure over 16 million meters, using the cost of single-phase meter as an estimate, will cost N720 billion.

Enwereonu proposed that the Central Bank can provide immediate bridge finance of 50 percent to procure and install meters, while a bond issue or financing from development bank is being finalised. Then proceeds could be used to refinance the CBN bridge funds and meet the balance 50 percent funding requirement.

If the estimated 20 million electricity customers are metered and brought into the payment basket and each paying an average of N5,000 monthly, it will make up for the current N40 billion shortfall.

But this will depend on capturing the accurate data of every customer using a Geographic Information System (GIS) to trace electricity supply cables to each user and enforce compulsory metering for all customers.

“Imagine operating a petrol fuelling station with pumps working without meters where the operator would look at the type of vehicle driven into the station to determine how much to charge for filling the vehicle tank. This is exactly what is happening in the electricity sector today,” Enwereonwu said.

Nigeria’s electricity market loses money and depends on the government’s bailout to maintain a semblance of normalcy, hence it has been unable to attract investments.

“The erosion of capital in the power sector due to the absence of a credible market and poor tariffs are some of its biggest challenges,” said Eyo Ekpo, CEO of Excerdite Consulting Limited, at the BusinessDay digital conference.

He excoriated market participants for flouting rules governing the market, the lack of corporate governance, and poor leadership from the sector regulator.

This opens the sector to all manner of abuse, fraud, and extortion. DisCos have flouted rules by the regulator capping estimated billing and NERC is issuing fresh threats of sanctions but the reality is that an industry that haemorrhages over N40 billion monthly is never going to attract investments unless it does things differently.

In 2018, NERC introduced the Meter Asset Provider (MAPs) programme which allowed third-party investors to provide meters to customers for a fee but the project ran into troubled waters when the Nigerian Customs began applying a 35 percent levy meant for imported meters on every component to assemble them locally. Worse still, the MAPs had limited access to long-term funding.

According to NERC, only 22,825 end-use customers’ meters were installed during the fourth quarter of 2019, a significant fall from the 83,768 meters installed during the third quarter, prior to the introduction of the levy.

“The MAP programme tailored for extended repayment has failed because there is no long-term fund for the MAP providers to tap into to provide long-term repayment schemes. MAP providers can only access short-term commercial loans at an average of 18-20 percent to be passed on to the repayment program,” said Enwereonu.

Analysts say long-term financing will revive the MAP programme, liquefy the sector, ensuring customers pay their fair share and reduce debts to the sector making it viable both for investments and taxation.
Meanwhile, the Federal Government on Thursday confirmed that it was on course to finding solutions to the several meters stuck at the Lagos port over 35 percent import duty levied on them.

Goddy Jedy-Agba, minister of state for power, confirmed this during a working visit to the Abuja Electricity Distribution Company, saying government was keen on ensuring metering of Nigerian electricity consumers as it directly affects revenue collections and liquidity issues in the sector.

BusinessDay had last week reported that while millions of electricity customers are being denied meters, container loads of imported components and manufactured meters are piling up at the ports because the Nigerian Customs Service is extending application of a 35 percent levy introduced by the government on imported meters to components used for meter production.

“Government is concerned and is working out a solution on issues of meters stuck at the port and I can assure you that very shortly, we would get the result. We want everyone metered and for the liquidity problem in the sector to be addressed,” he said.

ISAAC ANYAOGU (Lagos) & HARRISON EDEH (Abuja)