As the Nigerian Electricity Regulatory Commission (NERC) and the Minister of Power, Babatunde Fashola, bicker with the distribution companies (DISCOs) over tariff review, electricity consumers await the prepaid meters they were promised to guarantee efficient delivery of electricity to their homes.
Efficient delivery of electricity has been elusive to consumers of electricity for a long time.
Efficient delivery is guaranteed by the meter. This allows consumers to pay for only what they consume, and the DISCOs to charge for only what they supply.
Every day, many live at the mercy of the DISCOs who subject them to outrageous estimated billing. Many refer to the billings as “crazy”.
Juliana Taiwo-Obalonye, an Abuja-based journalist, recently exeprienced such questionable charge imposed by the Abuja Electricity Distribution Company (AEDC). She lives in an apartment whose monthly electricity consumption never exceeded N11, 000.
After paying her electricity bill for February, Mrs Obalonye’s arrears stood at N645.61 only. But, when AEDC brought the bill for March, the journalist was shocked. The arrears suddenly more than quadrupled by over 1,539 per cent to N10, 580.99.
Mrs Obalonye was furious. She protested to the AEDC and accused it of a massive rip off. She demanded explanations. But, while still waiting, another bill for N24, 519.92 arrived. To worsen matters, she was given April deadline to clear a total N35, 100.91, or face disconnection.
Millions of Nigerians face the same embarrassing fate like Mrs Obalonye every day. The sad thing is that most of these people have since paid for prepaid meters to be installed for them. But, years after the payment, many are still waiting for the meters.
Fashola Trades Blames with Discos
Last year, the Minister of Power, Works and Housing, Babatunde Fashola engaged in a bitter spat with the Executive Director, Research and Advocacy of the Association of Nigerian Electricity Distributors ANED, Sunday Oduntan, over the poor performance of the electricity sector since it was privatized.
While the minister accused the DISCOs of sabotaging the country’s economy by refusing to carry out directives aimed at resolving key constraints to performance, including metering of consumers, Mr Oduntan accused the minister and government of reneging on all performance agreements signed in 2013.
Mr Oduntan alleged that the government was not doing enough to bridge the over N1.3 trillion tariff gap in the industry.
He said adequate performance of the power sector, including provision of meters for consumers, was tied to adequate funding.
According to him, government has never kept its promise to ensure a tariff regime that covered production cost as well as a debt-free operations since the privatization of the power sector assets.
Last week, the Minister of Finance, Zainab Ahmed, announced the Executive Council of the Federation’s approval of about N495.67billion and N26.71billion for electricity generation and distribution companies respectively.
Mrs Ahmed said the money would be paid under the newly established government Promissory Note Programme (PNP) for the settlement of an estimated N3.4trillion inherited local and contractual debt obligations.
Regardless, Mr Oduntan insists this was hardly enough to scratch the surface of the huge debt owed the DISCOs by the ministries, departments and agencies (MDAs) as well as settle over N100 billion in subsidy for the poor state of infrastructure in the industry.
“The DISCOs are carrying on their financial books an impediment to both the sustainability of the electricity market and the ability of the investors to meet obligations of their Performance Agreement with the government,” he said.
He accused the regulatory authority, NERC, of refusing to review the existing tariff regime since 2016. He said this is causing the DISCOs revenue shortfall of about N1.4 trillion in the power sector.
The shortfall was blamed on the inability of the DISCOs to efficiently collect revenues from consumers. The inefficient revenue collection is linked to failure to deploy meters.
The Executive Secretary, Association of Power Generation Companies, Joy Ogaji, calls the meter the ‘cashbox’ of the power sector industry.
“Apart from helping the DISCOs measure electricity delivered to customers for billing, the meter helps in determining the consumption load by customers and guarantees revenue returns in the sector. It will almost help eliminate energy theft in the system,” she said.
“The survival of the power industry depends on the efficient deployment of the meter. When the GENCOs generate electricity and the Transmission Company of Nigeria (TCN) transmits, if the DISCOs are not able to efficiently collect the revenue from consumers they supplied electricity, the system fails,” she added.
MYTO And The Tariff Review Controversy
Under the multi-year tariff order (MYTO) introduced in 2015, Mr Oduntan said a minor review of the prevailing electricity tariff should be carried out every six months based on certain indices, including inflation, foreign exchange rate, domestic lending rate and power generation level.
The MYTO is a tariff model for incentive-based regulation to reward performance above certain benchmarks, reduction of technical and non-technical/commercial losses, resulting in cost recovery and improved performance standards by operators in the Nigerian Electricity Supply Industry (NESI).
Due to the huge operational shortfalls, Mr Oduntan said the ability of the DISCOs to meet some of its obligations under the 2013 performance agreement has been affected.
One of such agreements has to do with the supply of prepaid meters to consumers, which Mr Oduntan said is no longer the obligation of the DISCOs following NERC’s decision to transfer that responsibility to the newly established Meter Assets Providers (MAP).
“Going forward, DISCOs are no longer in charge of metering customers. The responsibility to supply meters to electricity consumers was no more the primary business of the DISCOs. NERC and the Ministry of Power are now in charge of metering. Metering is now government business. MAPs appointed by NERC are now in charge of metering,” he said.
Despite the government’s intervention as part of its role to ensure effectiveness, the minister said the MAP scheme does not relieve the DISCOs of their contractual obligation to provide meters, but to help them perform it.
He said the MAP policy introduced in March 2018 was to help relieve the DISCOs of the financial burden of supplying meters to consumers, allow the entrepreneurs to take up the responsibility as a business, diversify the sources of meter supply and address the huge metering gap in the system.
The MAP regulation provides for a third-party financing of meter production and supply, under a permit issued by the NERC, with a 10-year period to pay back the cost. Meters are seen as assets with a technically useful life of 10-15 years.
Apart from raising finance from banks to enlist in the MAP scheme, Mr Fashola said several entrepreneurs and some DISCOs have signed up to the government-supported N37 billion funding for the initiative.
Under the new MAP regulation, customers only pay for meters when they are physically installed in their premises. NERC has certified also about 115 MAPs and outlawed estimated billing by the DISCOs. But, the deadline for the take-off of the scheme is behind schedule.
Other Interventions to Bridge the Metering Gap
The MAP policy preceded the Credit Advanced Payment for Metering Initiative (CAPMI) introduced by the Power Ministry for electricity consumers and customers to pay for their meters upfront and the DISCOs to install the meters subsequently.
But, prior to the power sector privatization, a mass metering programme was implemented under the National Prepaid Metering Programme (NPPMP) using the pre-paid metering technology.
Under the NPPMP, Revenue Cycle Management (RCM) contractors were appointed to procure and install prepaid meters at low cost to customers. But, the programme became unsustainable.
Apart from the huge cost of funding the meters, the appointment of the RCMs was marred by allegations of corruption. Unqualified contractors flooded the country with sub-standard and non-standardised meter technology.
The CAPMI project gave willing consumers who wanted to be metered the opportunity to pay into an escrow account managed by the DISCOs and NERC accredited meter vendors/installers. Beneficiaries were to have their meters installed within 45 days.
Besides, the DISCOs were to refund the customers’ money with a 12 per cent interest through a reduction of 100 percent of the monthly fixed charge component of their electricity bills over a three year period, or as may be determined by NERC.
The refund was to cover the cost of the actual meter acquisition and meter box, while the customers bore the cost of accessories and installation.
However, the system failed and was suspended in 2016, as most customers who paid monies had to wait for years without getting their meters installed by the DISCOs.
According to Mrs Ogaji, the major challenges for the industry include regulatory uncertainties and policy summersault, inadequate capital to fund metering due to low CAPEX budget and dearth of local meter manufacturers.
With an exchange rate of the dollar at N360, she said no operator would be ready to approach a bank for a loan to finance the importation of meters in view of the high interest it will have to pay.
Again, with a low CAPEX, she said the cost of metering alone is likely going to wipe out the budget approved for the entire industry operations.
Regardless, Mrs Ogaji still believes something should be done to meter the customers.
Metering Based On Flawed Data by BPE
But, the Executive Secretary, ANED, Azu Obiaya, faulted the metering agreement with the DISCOs. He said it was designed to fail, as it was based on a flawed data provided by the Bureau of Public Enterprises (BPE).
According to him, when the privatisation of the power sector was done, BPE did not carry out a proper due diligence of the assets and liabilities of the sector, including the electricity consumers in the country.
He said BPE claimed there were about 2.9 million estimated registered customers, out of which about 1.9 million were unmetered.
As part of the performance agreement, Mr Obiaya said investors were required to meter about 1.7 million customers within a five-year period.
However, on taking over the power sector assets, he said the DISCOs discovered, after a customers’ enumeration exercise, that there were about 8.3 million registered customers.
Of this number, about 4.7million were unmetered as of December 31, 2017.
A quarterly report by NERC on the electricity market operations for the third quarter of 2018 showed the DISCOs performed poorly in their existing metering obligations.
Out of 8,310,408 registered active electricity customers, only 3,704,302 (44.6 percent) were metered, with about 4,606,106, or 55.4 percent of end-users still on estimated billing arrangement.
The customers’ enumeration exercise by the DISCOs for the period revealed an increase in registered customers and the metered customers by 4.2 and 4.3 percent respectively.
Statistics from the Nigerian Electricity Management Services Agency (NEMSA) showed even worse performance.
Out of a total customer base of about 8,914,601, the metered customers were about 3,591,168, leaving a shortfall of 5,323,433.
The National Bureau of Statistics (NBS) said the 11 DISCOs supplied a combined 1,653,144 prepaid meters to their consumers as at the third quarter of 2018, representing an increase by 2.36 per cent, from 1.62 million in the preceding quarter.
Discos Concerns on Metering
But, Mr Obiaya said the concern of the DISCOs was how this huge number of customers could be metered successfully without driving up the tariff, which he said at the moment is artificially suppressed.
According to him, about N305bilion is approved for the 11 DISCOs’ capital expenditure (CAPEX) for investment in metering and injection substations, grid expansion over the five year period.
“If the metering gap of about 4.7 million is multiplied with about N73, 000 (the average price of a three-phase meter), that translates to over N299 billion. What that means is that metering alone would absorb almost the entire CAPEX provided in MYTO 2015 for all 11 DISCOs for five years,” he said.
He said with a tariff regime that can guarantee only one third of what is required to make the system work optimally, taking the extra burden of metering will be suicidal for the business, as no bank will agree to give the financial support for that programme.
“If he DISCOs cannot access the necessary funding to meet their obligations, they will not be able to meet their metering responsibilities,” he said.
Although he said the DISCOs are still obliged to meet their 1.7 million customers metering commitments under the performance agreement, Mr Obiaya said they are more interested in an arrangement that will allow a comprehensive metering to help recover their revenues.
“All over the world, the DISCOs are exclusively responsible for metering, since this is their source of revenue assurance. The DISCOs are interested in a model that will work. To avoid confusion, the DISCOs should be allowed to call for procurements from prospective meter vendors.
As a demonstration of that commitment, Mr Obiaya said the DISCOs have so far metered over 88 percent of the 1.7million customers.
However, he said the DISCOs will prefer a commercial arrangement that will allow for vendor financing.
“Anything that can be done to manufacture the meters locally is welcome, because it will help create jobs. It is in the interest of the DISCOs that the customers are metered. The MAP is the most viable option to address the problem.
“Electricity theft results in the loss of 40 percent of DISCOs’ revenue. About 30 percent of the meters are bypassed by consumers. When people bypass the meters, or tap the wires or adopt any arrangement that deprives the DISCOs some revenues, the entire value chain is affected and ultimately the consumers will suffer,” he said.
For the Chief Transformation and Strategy Officer of Ibadan Electricity Distribution Company (IBEDC), Iranola Ayodeji, metering alone does not solve the nation’s power challenge.
He said the metering gap, coupled with an inefficient and obsolete distribution infrastructure, high incidence of energy theft through meter by-pass by consumers, pose severe challenges to the liquidity, efficiency and survival of the power sector.
For the Head Market Analytics and Compliance, NERC, Sharfudeen Mahmoud, the way forward is to either unbundle metering, or the DISCOs to franchise out parts of their network to other parties willing and able to deploy meters and expand the network.
With such arrangement, the franchised investors would recover their investments from a deduction every time a customer recharges their meter.
This solution will be at no extra cost to the customer.