By Adewale Sanyaolu
Less than two weeks after the Socio-Economic Rights and Accountability Project (SERAP) released a report on how over N11 trillion meant to provide regular electricity supply was allegedly squandered under the governments of former presidents Olusegun Obasanjo, Umaru Musa Yar’Adua and Goodluck Jonathan, the Federal Government opened yet a fresh window financial drain through which another N39 billion bailout would be made available for Distribution Companies (Discos). Before the recent lifeline however, the Buhari administration had stood up to be counted among those in the eye of the storm in the mounting wastage of public resources when it had earlier spent a whopping N740 billion in strange interventions scheme without raising distribution or generation capacity beyond the 4,000mw.
Minister of Power, Works and Housing, Mr. Babatunde Fashola, who announced the lifeline for the Discos at the 18th Monthly Power Sector Stakeholders Meeting hosted by Kano Electricity Distribution Company (KEDCO) last Monday, said the gesture was part of power sector recovery programme of the government aimed at ensuring uninterrupted power generation and distribution. He added that it was also aimed at ensuring that every consumer of electricity is provided with a meter.
“It is also aimed at ending the series of complaints by consumers who applied for meter but were not supplied at the appropriate time,’’ he said.
The Minister explained that the successful implementation of the power sector recovery programme would assist in resolving the conflict between distributors and consumers over tariff collection. But his outburst may have drawn the ire of Nigerians, industrialists and stakeholders alike, who accused the Discos of inefficiency, ineptitude and insensitivity to the plight of Nigerians. They equally faulted the posture of the Federal Government, saying the power sector under the current administration has not made any significant impact towards growing the economy just as it said the bailout and several others have operated in secrecy without Nigerians having a clear idea of its modus operandi.
Metering; Rocket science or myth
Fashola shocked Nigerians last month when he said that the 11 Discos would need about N220 billion to provide prepaid meter to power consumers even as Nigerians have had to bear the brunt of the inefficiencies of the Discos by paying about N3 billion monthly in estimated billing.
More worrisome is the Discos’ inability to give meters to every household, a challenge further compounded by liquidity challenges and difficulties in accessing credit to purchase meters.
But in the face of these daunting challenges, obervers believe there is to be a ray of hope for the 11 Discos if only they could muster the courage to tap into the opportunities that exist in meter financing, to save themselves the hassles of seeking funds to carry out metering exercise for over six million unmetered consumers. Electricity meters are an asset class capable of attracting long-term financing and new investments in the power sector. Meters have the unique asset features that are ideal for attracting long-term financing with long useful asset life ranging between eight and 20 years of exclusive usage.
What is now required is how to unlock the huge investment opportunities in metering through the creation of a meter asset class, which would allow for the development of financial instruments such as leasing and/or securitisation (ABS) products, to fund the rollout of electricity meters in a sustainable, long term and profitable manner.
Metering services in Nigeria’s power sector
Meter services are an important aspect of a utility’s business anywhere in the world. They broadly encompass metering technology and infrastructure, meter finance, meter installation, meter reading, meter testing, meter maintenance and other ancillary meter services necessary for it to remain on the wall and functional. In some advanced jurisdictions, meter services is an industry on its own, disaggregated from t he electricity distribution business, as a separate, competitive but regulated component of the power sector value chain, with licensed meter service providers. In these jurisdictions, Meter Service Providers (MSP) are responsible for all aspects of metering, including financing and providing electricity customers with meters but the reverse is the case in Nigeria.
Stakeholders fault move
Yemi Oke, Associate Professor, Energy/Electricity Law, Faculty of Law, University of Lagos, said government has no business in the power sector other than regulation given the fact that government has been funding the power sector for strange reasons while the current regime has already spent N740 billion in power sector intervention without results to show for it.
‘‘Government could only galvanise investment into the sector by encouraging other private sector players to provide support for the Discos not government itself providing funds to the tune of N39 billion. This is not acceptable. What the Minister has not disclosed is whether this money has been there or they are just sourcing it or who is bringing the money? There are still a lot of questions that are not yet answered as far as this money is concerned.
“It is not fresh money, to the best of my knowledge. It is a structured fund but I don’t want to say much. All I will want to say is that Nigerians should follow this closely because another N39 billion is about to be given out again to private entity, after privatisation to roll out meters. Metering that ordinarily and statutorily is their core responsibility.”
On his part, Chairman, National Association of Small Scale Industrialists (NASSI), Mr. Tayo Kuti-George, said the latest intervention of N39 billion to the Discos for metering plan has clearly shown that the privatisation exercise was fundamentally wrong.
He said despite investors shortchanging government on what they paid for assets, releasing another N39 billion for them when some other critical sectors of the economy are begging for attention is a slap on Nigerians.
The NASSI boss said he was more than convinced that the agreement the Federal Government entered into with the power investors favours them more than the country, hence their ability to always want to hold the country to ransom with government equally falling in line with series of bailouts.
‘‘If there is nothing wrong with the contract papers signed with them, we shouldn’t continue to be at their mercy all the time. Government officials must have entered into that agreement in a compromised manner because the assets were bought cheap.”
He said any attempt by the Federal Government to terminate the agreement will cost the country a lot more, adding that, that is why government is always looking for a middle ground by providing these bailouts to them.
But Partner, Bloomfield Law Practice, Mr. Ayodele Oni, explained that the cost of providing meters should have been factored in at privatisation, warning that continued government intervention in the sector can create moral hazard, as market participants continue to expect the government to bail them out.
But he added: “It is pertinent to first acknowledge that metering has been at the forefront of collection losses, which has the knock-on effect of illiquidity in the electric power sector. This has also made many efforts being effected by both the private sector and the government fruitless.
On the part of the Discos, we must also recognise that the currency issues of the last two years have meant that the cost of importing meters has dramatically risen. This is also coupled with the fact that the meters that are provided are frequently tampered with. As such, a solution had to be found, which in the extreme meant that the government had to intervene to prevent the total collapse of the sector which is almost now at a pariah status, internationally,’’ he said.
He disclosed that it is clear that state intervention is required to ensure stability, suggesting that one solution may be for the government to request additional concessions from market participants for every intervention. This, he said, will encourage market-led initiatives and reduce the appetite for government support.
‘‘Furthermore, government itself made several promises prior to and during the privatisation process, which it failed to fulfil, possibly due to circumstances outside its own power. Thus, it is not an entirely bad idea for government to now bail out because issues such as tariff increases, enhancement of the grid, among other issues, were not satisfactorily attended to by the government for reasons including the political sensitivity of same. Consequently, a bail out may only be fair to all parties concerned.”
New business model for financing meters
Meter Service Providers (MSP) model as a new business model for the Nigerian metering industry will address the metering gap and create a competitive metering market.
Under MSP business model, a specialist MSP will enter into a meter services agreement (or similar agreements) with Discos to finance the procurement of electricity meters (inclusive of the associated communication and vending infrastructure) and also their installation and management. The meters are fully owned and managed by the MSP on behalf of the Discos. For providing the meters and the associated meter services, the MSP is entitled to a fee calculated as a proportion of revenues accruing from each meter financed.
The MSP business model is not new per se. MSPs operate in the UK, Australia, the USA and other advanced electricity markets. In the UK, the meter services business is highly competitive and attracts significant investments yearly. The UK is presently rolling out 53 million smart meters using the MSP model, to replace existing traditional meters by 2020. The meter assets are financed and will be owned by these meter services companies that are investing billions of pounds to finance, install and manage the meters. The introduction of regulated, specialist MSPs into the Nigerian power sector will unlock the opportunities in metering services and introduce competition that would foster innovation, improved customer service and attract private capital into the power sector.
Who pays for meters?
The MSP finances and also owns the meter assets. The MSP is able to raise debt and equity financing to finance the procurement of the meters on the back of its meter assets and meter revenues. For instance, the MSP can easily raise long-term bonds or commercial loans to finance the meter assets using the same meter assets and potential revenues from the meter assets, as the underlying security.