Recent Policy & Regulatory Developments in Nigeria’s Electricity Metering Sub-Sector: Policy Somersault or Broad Consultation?
In Nigeria, up to 8 million electricity customers do not have electricity meters but they consume electricity. What happens is that an electricity distribution company (“DisCo”) estimates the amount of electricity used in arrears and sends an estimated bill to a customer, usually at month end. 99% of the time, electricity customers dispute these estimated electricity bills as being outrageous and non-reflective of actual consumption. Where a consumer and a DisCo are unable to agree on the amount to be paid for electricity consumption, the DisCo typically refuses to supply electricity by disconnecting the consumer. Today, many Nigerians live in darkness and have no access to power partly because of the huge metering gap in the electricity sector. This is notwithstanding the Estimated Billing Regulations which were issued by the NERC to address some of the issues around the practice of estimated billing.
For the most part, Nigeria’s Central Bank, (the “CBN”) (and to a large extent, its electricity regulator, the NERC) have been relentless in supporting the electricity industry in Nigeria. In its latest intervention, the CBN hopes to attract foreign investors to manufacture/assemble electricity meters in Nigeria by granting single-digit long term loans to local and foreign investors who establish meter manufacturing/assembly plants in Nigeria. In 2018, the NERC introduced a Meter Asset Provider Policy (MAP Policy) with the objective of bridging the metering gap, which stood at 10,000,000 electricity meters. The approach of the MAP Policy was to prohibit the DisCos from procuring, financing, installing and maintaining electricity meters and to administratively re-assign[1]the responsibility for procuring, financing, installing and maintaining electricity meters to newly licensed energy asset leasing companies, referred to as MAPs.
Under the MAP Policy, electricity meters were no longer considered as part of the regulatory asset base (RAB) of the Discos. The primary mandate of the MAPs was to procure, finance, install, maintain and replace electricity meters based on allocations made by Discos. The working assumption for the MAP Policy[2] was that re-assigning the responsibility of metering will accelerate the closure of the metering gap and also free up cash for DisCos to carry out investments in a bid to address some of the liquidity problems of DisCos. The NERC introduced important investor guarantees, which included pricing indexation to the US Dollar and a direct prohibition on Discos from procuring, financing, installing and maintain meters. Please read our earlier update on the MAP Policy here.
In 2020, the CBN introduced a phased[3] National Mass Metering Plan (the “NMMP”), a program under which the CBN granted long term (10 years), single-digit interest loans to DisCos and local manufacturers for the procurement, installation and supply of electricity meters at an all-in concessionary interest rate of not more than 9%. Qualifying Discos and local manufacturers will be entitled to a 24-month moratorium from the date of disbursement of loans accessible under the NMMP. The NMMP aims to speed up the closure of the metering gaps and to encourage local and international investors to establish meter manufacturing plants in Nigeria.
By design, the NMMP had the potential to frustrate the existing MAP Policy because the MAP Policy was based on the assumption that DisCos would be excluded from direct procurement of electricity meters, thereby creating a market for energy asset leasing that allowed customer to pay the cost of meters to MAPs upfront or through meter service charges which a consumer pays instalmentally . In a bid to protect investments in the distribution sub-sector, what the NERC has now done in a new update to its MAP Policy is to attempt to bridge the gap between the objectives of the NMMP and the MAP Policy. We discuss some of the keys updates and clarifications below:
- The new rules broaden the financing options available to DisCos and leaves the choice of which financing option to deploy to the board of each DisCo.[4] The DisCos are no longer prohibited from procuring meters directly and MAPs no longer have the exclusive right to sell electricity meters to customers based on allocations from DisCos. Discos may now acquire electricity meters[5] using a range of financing options, which include, the loans under the NMMP or using the energy asset financing structure contemplated by the MAP Policy. DisCos may also procure meters using vendor financing options, shareholder funds or through other financing methods.
- MAPs may continue to supply electricity meters to DisCos under the existing MAP procurement structure using Meter Service Agreements. The new rules make it clear that payment for meters installed by MAPs can only be upfront payment. This is critical as it provides a level of revenue assurance for MAPs.
- The new rules clarify that electricity meters are now to be installed free of charge to customers. Electricity customers need not “pay” for electricity meters and are only required to pay end-user tariffs. Customers who paid for electricity meters are to be refunded by the DisCo in the form of electricity credits over a period not exceeding 36 (thirty-six) months
- The new rules make it clear that meters are owned by DisCos and DisCos only, have the rights and privileges of ownership of installed electricity meters.
- The repair and replacement of faulty electricity meters is now the responsibility of Discos. This piece of legislation is critical because prior to now, MAPs had the responsibility for repair and replacement under the MSAs signed with DisCos.
- The new rules provide legal basis for the position that LMMAs and MAPs are now responsible for network clean up in readiness for metering but are not responsible for supplying connection cables or associated accessories. This helps to close a long standing lacuna around who should be responsible for network cleanup
- International OEMs in the metering subsector may enter the Nigerian market as MAPs or as local meter manufacturers or assemblers (LMMAs)[6]. There are important advantages for each route depending on own circumstances. Here are some considerations
- Whilst MAPs may import fully assembled electricity meters for MAP procurements, they must procure atleast 30% of their stock from local manufacturers.
- To be eligible to participate in the NMMP, an LMMA must manufacture or assemble electricity meters in Nigeria. The minimum threshold applicable here is atleast a demonstration that local value addition is not less than 6 meter components
- The loans accessible under the NMMP can only be used to procure electricity meters from local manufacturers
- There is a clear policy direction that Nigeria’s government will continue to incentivise local manufacturing of electricity meters. International OEMs can take advantage of a range of tax incentives and concessionary interest loans granted by the government.
Comments
We think that the new rules reflect broad stakeholder consultation and does a good job of balancing the competing interests of stakeholders in the Nigerian electricity supply industry (NESI). It would be useful for DisCos to demonstrate good faith and transparency around the refund of the price of electricity meters to customers who pay upfront, by way of electricity credit. At the minimum, we expect that customers would be notified and provided with details of such refund as they happen. Another area of concern in the metering sub sector, pertains to the often unprofessional and sometimes fraudulent nature of some customs clearing agents. One way the NERC can address these issues is to set minimum requirements and license custom agents who wish provide customs clearing services to MAPs and LMMAs as service providers in the NESI
For further inquiries, please reach out to your usual Balogun Harold contact or via support@balogunharold.com
[1] There is some argument around whether such administrative re-assignment is consistent with the rights of DisCos under the Electric Power Sector Reform Act
[2] The MAP Policy attracted attracted over 24 local and international investors to the electricity metering sub-sector in Nigeria.
[3] The NMMP is divided in two phases. In the first phase, referred to as phase zero, it is expected that all meters from the MAPs would have been exhausted. The second phase will commence at the end of the first phase in 2022. It is estimated that up to 4 million meters will be installed in the second phase.
[4] this position, in our view is consistent with the expectations of the extant Electric Power Sector Reform Act
[5] Such meters are now to be included in the regulatory asset base of DisCos
[6] To register as an MAP or a LMMA in Nigeria, please reach out to your usual Balogun Harold contact or via support@balogunharold.com
