How did the Nigerian Electricity Supply Industry (NESI) get here?
In a bid to address the perennial power supply issues in the country, the Nigerian Electricity Regulatory Commission (NERC) commenced nationwide consultations in February. Already, the World Bank had expressed interest in providing some funding that would be useful in improving the reliability of electricity supply, achieving financial and fiscal sustainability, and enhancing accountability. Coincidentally, the desire to achieve reliability of electricity supply also echoed with electricity consumers: they resolved to pay higher electricity tariffs only if the hours of supply were commensurate to the tariff they were expected to pay. Additionally, unmetered customers advocated for an end to estimated billing through nationwide mass metering. This is partly how Service Reflective Tariff (SRT) regime, which kicked off in September, and the Nigerian Mass Metering Program (NMMP), which kicked off in October, came into existence.
Service Reflective Tariffs simply ensure that customers pay a tariff commensurate to the service quality (mainly measured by the hours of supply) they receive. Customers are now grouped into 5 tariff bands namely A, B, C, D, and E, and are charged reliability-based tariffs for receiving a minimum of 20, 16, 12, 8, and 4 hours respectively on the feeders that serve them. To protect the most vulnerable consumers, those leaving in very rural areas, their tariffs have remained frozen at ₦4/kWh while tariffs for those in bands D and E also remain frozen. For customers in Bands A to C, tariffs have gone up by an average of 65 per cent. For these groups of customers, tariffs are close to cost-reflective tariffs.
Why has the metering rate of electricity customers in Nigeria been low?
As of March 2020, NERC reported that there were more unmetered electricity customers than metered. Of the 10.5 million customers, about 60 per cent were unmetered. The regulator also remarked that the NESI suffered huge collection losses mainly due to customer apathy as a result of estimated billing.
In March 2018, as a regulatory measure aimed at addressing the issue, the regulator introduced the Meter Asset Provider (MAP) Regulations 2018. Apart from introducing the regulation with the objective of eliminating estimated billing practices, the regulator also aimed to attract private investment to the provision of metering services; enhance revenue assurance; and ultimately close the metering gap. However, over two years since the regulation was released, there have not been significant investments to close the metering gap until now.
Prior to the introduction of SRT, the low metering rate may not be unconnected with the low return on metering investments due to low end-user tariffs that are not cost-reflective. To address the metering challenge, the Nigerian government through the Central Bank of Nigeria (CBN) released a framework for financing the National Mass Metering Program.
What is the NMMP about?
Although the NMMP has similar objectives to the MAP program, unlike the MAP which targeted only meter manufacturers and metering service providers, the NMMP aims to provide financial support through participatory financial institutions not only to the local meter manufacturers (Upstream) but also to the Electricity Distribution Companies also known as Discos (Downstream). NMMP aims to close the existing metering gap over the next 24 to 36 months. The initial phase would involve deploying the estimated 1 million meters available in the country.
In terms of CBN’s financial support to Discos, the facility shall be at an “all-in” interest rate not exceeding 9% and shall be for a maximum tenor of 10 years with a maximum of 2 years’ moratorium from the date of the loan disbursement. In the spirit of COVID-19 relief, the apex bank’s “all-in” interest rate shall not exceed 5 per cent till the end of February 2021. Phase 0 of the program shall provide the financing needed to cover the cost of orders under the MAP program. Phase 1 of the program shall provide financing for bulk procurement from local meter manufacturers/assemblers.
In terms of CBN’s financial support to local meter manufacturers, the apex bank is seeking to support setting up or expansion of meter manufacturing or assembly facilities; working capital; procurement of meter manufacturing or assembly equipment; and procurement of production data management and software systems. The CBN is capping funding at 70 per cent of the total cost of the applicable meter manufacturing expenses/costs with similar facility terms as applicable to Discos. The major difference is that the working capital facility shall be for one year with provision for roll-over not more than two times at a maximum tenor of 3 years.
What is the status of the implementation of the NMMP?
Already, different Discos have kicked-off the NMMP. For the first phase of the program which will run till the end of the year, Ikeja Electric is rolling out over 106,000 prepaid meters to customers across its six Business Units. Ibadan Electricity Distribution Company (IBEDC) Plc said it was going to commence the rollout of free meters to customers under the National Mass Metering Program (NMMP) by the third week of November 2020.
Are these meters free?
Customers are not expected to pay upfront for these meters. However, repayment of the CBN loan that was given to Discos to fund the metering program will come from customer tariffs. Some Discos have stated that the modalities of cost recovery will be communicated to the beneficiaries at a later time.
Will SRT and NMMP solve Nigeria’s power problems?
SRT and NMMP are two significant developments in the NESI that have the potential to address revenue assurance issues that have limited investments. However, for service levels to be effectively guaranteed downstream between the Disco and the customers, service levels also need to be guaranteed upstream. The Transmission Company of Nigeria (TCN) would need to guarantee Discos that the energy nominated to be supplied to the different network injection points is supplied as requested. The Gencos also need to be able to support TCN to meet the downstream supply expectations and Gas Suppliers also have a significant role to play. Hence, this underpins the need for back-to-back Service Level Agreements (SLAs) in the NESI.
With effective coordination of operations and investments along the value chain, power supply can gradually improve to reduce consumer apathy as consumers are continuously metered nationwide. Hence, the onus is on the operators to make the necessary investments that can help them to possibly make all customers Band A customers.