Our folks at the Nigerian Electricity Regulatory Commission (“NERC”) have been busy!
Since the turn of the year, they have released numerous policies and regulations that are geared towards improving the Nigerian Electricity Supply Industry (NESI). The latest of such regulations is the Order on Operationalization of “Tranche A” of the Meter Acquisition Fund (“the Order”).
BACKGROUND
Metering is an integral part of the NESI, ensuring revenue assurance for Distribution Companies (DisCos) and enhancing public trust in their services. However, since the privatization of the NESI, DisCos have struggled to adequately meter their customers primarily due to a lack of financing. DisCos have been unable to secure the necessary debt or equity financing from capital markets, international finance corporations, or investors because of their financial illiquidity, which is largely caused by tariff and market shortfalls. Lenders and financiers remain cautious about providing finance to DisCos due to a lack of confidence in their ability to repay loans.
Given its importance to the NESI, numerous efforts have been made to address the metering problem through various initiatives such as the Credit Advance Payment for Metering Implementation (CAPMI), Meter Asset Provider (MAP), and the National Mass Metering Programme (NMMP). Unfortunately, these interventions have not succeeded in closing the metering gap, which currently stands at approximately seven million meters.
In another effort to tackle this problem, the Commission conceived the idea of a Meter Acquisition Fund (MAF). The primary purpose of the MAF is to serve as securitization or guarantee for long-term financing, thereby improving the confidence of lenders and financiers in the NESI. Regarding its funding, the MAF was initially expected to be credited with deductions of N0.75 per kWh from the revenues of DisCos, managed centrally by a Fund Manager. However, under the MYTO released in January 2024, that deduction was increased to N1.185 per kWh.
Since the deductions began in 2023, the Commission reports that the MAF has accrued a total of N21,864,851,725.00 (twenty-one billion eight hundred and sixty-four million, eight hundred and fifty-one thousand, seven hundred and twenty-five naira only) as of April 2024.
MAIN PURPOSE OF OPERATIONALIZATION ORDER
While the main purpose of the MAF is to provide securitization of loans obtained by DisCos for metering, this Order derogates from that.
Recall in April 2024, the Commission increased the tariff for Band A customers to N225/kWh (now N206.8/kWh), which was met with significant dismay. To improve customer satisfaction, the Commission has now directed the immediate metering of unmetered Band A customers using funds directly from the MAF. The goal is to accelerate the closure of the metering gap for all customers under tariff Band A, ensuring revenue protection and enabling customers to monitor and manage their demand and consumption. To this end, the Commission has approved the disbursement of N21,000,000,000.00 from the MAF to DisCos to undertake this exercise.
EXPECTATION OF STAKEHOLDERS
1. Discos
To access the funding, DisCos are expected to:
· Provide an Application Programming Interface (API): Integrate directly with the Fund Manager to facilitate real-time data sharing and confirmation of the activation of all meters installed under the MAF scheme.
· Know-Your-Customer (KYC) Documentation: Ensure all affected customers have completed KYC documentation.
· Prepare Customer Premises: Confirm the readiness of the premises of all customers to be metered.
· Conduct Procurement Process: Within 14 days, conduct a transparent and competitive procurement process for meter price determination, selection, and engagement of MAPs/LMMAs for metering under the MAF scheme.
· Report to the Commission: Send a report on the above process to the Commission for approval within a further six days.
· Enter Contracts: Once approved, enter supply and installation contracts with the selected MAPs/LMMAs, and file copies of the contracts with the Commission.
· Complete Installation: Ensure that the contracted volume of meters is completely installed within 60 days of the Commission’s approval
2. Meter Asset Providers (MAPs)/Local Meter Manufacturers and Assemblers (LMMA)
· Possess a valid MAP permit or NERC certification for manufacturing of electrical energy metering systems/importation of knocked down parts.
· Provide evidence of fulfilment of a minimum threshold of 30% local content for all meters to be supplied and installed.
· Enter supply and installation contracts with the DisCos.
· Ensure that the contracted volume of meters is completely installed within 60 days of the Commission’s approval.
3. Band A Customers:
Fortunately, there are no expectations for Band A customers. This is because all the meters to be procured and installed under this MAF framework will be at no cost to customers.
IMPLICATIONS
For those who may not be aware, the Commission still issues an Order on Capping of Estimated Bills to each DisCo on a monthly basis. These capping orders restrict DisCos from billing an unmetered customer beyond a set threshold, regardless of the total energy consumed by such customer. In effect, DisCos tend to suffer enormous commercial losses from energy supplied to these unmetered customers, especially those under Band A with higher tariffs. However, if these customers are successfully metered as anticipated under this Order, DisCos should expect to enjoy improved energy billing and revenue collection which would also have positive ripple effects on the entire value chain.
For MAPs/LMMAs, this Order could not have come at a better time. Since October 2023 and prior to the recent deregulation of meter prices in 2024, metering activities in the NESI have practically ground to a halt. This was due mainly to the escalation of the naira-dollar exchange which drastically increased the cost of manufacturing and assembling meters in Nigeria. The increased cost of production meant that MAPs/LMMAs were unwilling to produce or install meters at the then regulated price. In fact, the decrease was captured in the Commission’s Q3 and Q4 reports which highlighted 18.04% and 25.72% decreases respectively. With the implementation of this Order, MAPs/LMMAs can expect an increase in production activities and given that meters will be supplied at deregulated prices, further increase in revenue and profits.
For the unmetered customers under Band A, this would provide a much-needed relief from the scourge of estimated bills. Although I have highlighted the cap on estimated billing, it is important to understand that estimated bills are distributed based on the aggregate energy consumption of all customers on a distribution feeder. This means that even the capped estimated bills of residential customers could be influenced by the energy consumption of commercial customers on the same feeder. This was the experience of many residential customers who, following the increase in the Band A tariff, saw exorbitant bills which did not reflect their actual energy consumption. However, with the implementation of this Order, these customers will be assured of an accurate computation of their energy consumption and afforded more freedom to manage their energy cost.
CONCLUSION:
One of the main highlights of this Order is the strict timelines within which the DisCos and MAPs/LMMAs are expected to complete this exercise. From the effective date of the Order (June 24th), the DisCos are expected to initiate and complete the installation of meters for all unmetered Band A customers within three (3) months at most. Whether this can be achieved is another debate. However, the Commission must be commended for taking the complaints of customers seriously and initiating this laudable scheme.
Secondly, the requirement of API integration with the Fund Manager by the DisCos is a welcome development as it should strengthen the transparency and accountability of the initiative.
Now the onus is on the DisCos and MAPs/LMMAs to perform, as the previous impediments of lack of financing and underpricing of meters have been resolved.