Still on Electricity Metering Chika Amanze-Nwachuku
Writes that with the recent data provided by NERC that only 3.39 million out of the 7.47 million customers nationwide have electricity meters, the metering gap poses a serious challenge to the liquidity, efficiency and survival of the power sector
The Nigerian power sector is bedevilled by sundry challenges that have continued to stunt its growth; chief among them is the huge metering gap. The importance of electricity meters in the power sector value chain cannot be over-emphasised; it is the cashbox of the power sector industry. While the generation companies (GENCOs) produce the electrons that are transmitted and distributed to homes, offices and industries, the revenue generation process starts from the meters installed at these locations. Therefore the huge metering gap and inefficient and obsolete metering infrastructure constitute serious challenge to the survival of the power sector.
A recent data obtained by THISDAY revealed that over 50 percent of electricity customers are unmetered, while a significant proportion of installed meters are faulty, non-functional electronic and analogue meters. Besides, there is a high rate of energy theft due to by-passed pre-paid and post-paid meters.
According to the data from the electricity industry regulator, the Nigerian Electricity Regulatory Commission (NERC), only a paltry 3.39 million out of the 7.47 million customers nationwide have electricity meters. Although the distribution companies (Discos) made commitments to provide and install 1.7 million meters in 2016, they were only able to provide and install 215,424 meters to their customers for the entire year.
Investigations revealed that of the 3.39 million customers that are metered, more than half of these meters are either faulty, non-functional or are completely obsolete electro-mechanical devices that have outlived their useful lives. In fact, the true metering gap, in reality, is far higher than 4.08 million unmetered customers recorded by NERC, if you factor in the faulty, non-functional and obsolete meters. Also, the average annual new customer growth is predicted at about 9 percent per year (under the MYTO tariff structure), which means that an additional 300,000 to 500,000 meters are required every year.
Past Initiatives to Address the Metering Gap
Prior to the privatisation of the power sector in November 2013, the federal government had implemented a mass metering programme under the National Prepaid Metering Programme (NPPMP) to address the metering gap. The NPPMP was focussed on the adoption of the pre-paid metering technology.
Under the NPPMP, the federal government appointed Revenue Cycle Management (RCM) contractors to procure and install pre-paid meters at “no cost” to electricity customers. However, the NPPMP was not sustainable owing to a number of reasons among them, the huge cost of funding the meters, which the government was unable to provide, the lack of transparency in the appointment of RCMs, the short duration of the RCM contracts, uncoordinated meter procurement processes, proliferation of sub-standard meters, non-standardisation of meter technology and corruption.
To bridge the enormous metering gap and address the funding issues under the NPPMP/RCM model, the NERC, in 2012, introduced a new meter intervention programme tagged, ‘Credited Advance Payment for Metering Implementation’ (CAPMI). Under the CAPMI scheme, the customer was expected to self-finance the meter, with the meter cost amortised over a period from his/her energy charge at a 12 percent interest rate per annum. However, the CAPMI scheme, which at first proved to be a viable exercise, became riddled with a lot of difficulties, making it unsustainable due majorly to the fluctuating forex regime that adversely affected the Nigerian economy.
Since most of the meters given to customers are imported, the stability of the forex is of utmost important for contractors to be able to bring in meters for distribution. When CAPMI was launched, the rate at which meters were sold to customers was fixed at a price when the rate was still $1 to N195, but due to forex volatility, the cost of procuring these meters became almost double the price, rendering the scheme unrealistic.
Owing to the foreign exchange scarcity too, companies were unable to import meters and could not meet up customers’ demand. This prompted the regulatory authorities to halt the CAPMI scheme. And a directive was thereafter issued to the Discos to implement their own metering schemes.
Impact of Privatisation on the Metering Gap
One of the objectives of the power sector privatisation was to address the metering gap. Thus core investors in the Discos were required to explicitly commit to a firm meter rollout plan over a five-year period. Today, given the liquidity challenges in the industry, Discos and their core investors are financially constrained to meet their metering obligations under the Performance Agreements with the Bureau of Public Enterprise ( BPE).
Another constraining factor is the size of allowable CAPEX under the MYTO tariff model. For instance, the Ibadan Disco, the largest by customer number, has an allowable CAPEX provision of less than 8billion. The allowable CAPEX provision for each DISCO is a function of its Regulatory Asset Base (RAB). Meters form part of a Discos’ RAB and the tariff structure should allow for the full recovery of the RAB. If the RAB increases, through addition of new network assets, electricity tariffs should increase as well. This is a catch 22 situation – i. e. if NERC increases Discos allowable CAPEX to factor meter rollout, electricity tariffs will have to go up! According to stakeholders, the key challenge for Discos, NERC and other stakeholders in the power sector is developing and implementing sustainable, long- term meter financing initiatives to fund the huge capital outlay necessary to address the metering gap.
Deregulating Meter Ownership
Under existing regulations, Discos have an obligation to provide meters to their customers and own the electricity meters regardless of who financed the meters. Experts have suggested that part of the solution to address the metering gap is for NERC to deregulate meter ownership and financing. They reasoned that in a deregulated meter market, electricity customers and/ or third parties should be able to finance and own electricity meters.-households and businesses would then be able to move their meters when they move premises or relocate, the same way customers move with their DSTV decoders when relocating. Implementation, according to the experts, would require regulations guiding the procurement and ownership of meters by third parties and customers. Besides, deregulating meter ownership, they added, would free up the balance sheets of Discos s to absorb more liabilities, reduce electricity tariffs as the RAB of Discos becomes lower, while also allowing them utilise their allowable CAPEX more efficiently to finance critical network infrastructure.
Managing the Meter
Apart from financing and installing a meter, another very important thing is meter management. Management of electricity meters involves the reading, inspection, routine parts replacement, testing, emergency repair of meters and all such actions required to ensure the meter is functional at all times. This is necessary for revenue assurance for the distribution companies. Meter management has its own costs as well. In other jurisdictions where there is a competitive metering industry, electricity customers usually bear this cost. Thus, it is necessary for NERC to consider re- introducing a meter management fee component of electricity tariffs, solely applicable to managing electricity meters. Another challenge with meter management is the huge rate of bypass in Nigeria. A recent statistic within the franchise area of IBEDC revealed that for every 10 meters installed, between five and six are bypassed within 48 hours. This inadvertently means that the more customers are metered, the more revenue is being lost. This brings additional cost into the business as not only do Discos have to finance metering; they also have to finance a system or taskforce that will stem bypassing the meters.
Metering as an Investment Opportunity
Whereas the Discos are financially constrained to fund both the metering gap and other investments to improve the network, NERC is constrained to increase tariffs to cover an increased RAB. Discos would therefore need to develop creative, off-balance sheet funding structures suitable for financing the metering gap, in line with extant regulatory constraints on their CAPEX. One of such solutions considered is for the Discos to outsource metering to third party companies but this also comes with its own challenges.
Owing to the huge capital involved, not many people consider financing and operating meter asset as an investment opportunity. For instance, at the current forex rate, over N50billion is required to meter the currently registered customer population within IBEDC alone. There is simply not enough liquidity within the Nigerian economy to absorb this financial burden as most customers cannot afford to buy meters outright. This still leaves the financing to the Discos who already have their own fair share issues. Simply put, there is no sensible business model for meter financing, neither is there a deregulated, competitive metering industry which may drive investment. All the same, deregulating the meter industry has both potential and likely pitfalls.
Should Govt Finance Discos Metering Programmes?
The recently approved power sector recovery plan by the federal government recognises inadequate metering infrastructure as one of its intervention areas that require financing. The federal government and the World Bank are certainly working out the implementation details of the metering intervention, and funding the metering gap.
It is worth of note that the current model of the power recovery programme cannot work given the lapses in metering alone. Therefore there is the need to review the standing of the government on the liquidity issues in all tiers of the electricity value chain. Industry experts posit that the injection of cash to stabilise generation is not enough as it does not consider the metering challenges and the fact that debt will continue to build if it is not addressed.
In fact, power sector experts suggest that the proposed power sector recovery programme should focus on creating a deregulated and competitive metering industry, and the entry of third party specialist meter asset financing and management companies, rather than provide direct funding to discos to implement their metering programmes.