by Kester Enwereonu On Jun 17, 2020
This brings us to prescribing a vaccine for the industry to keep the industry healthy and safe from further virus attack and make it attractive for local and direct foreign investment which is the kernel of this write-up.
The vaccine lies simply in a mechanism that brings those unknown 12m electricity consumers into the payment basket.
To cover the value chain revenue of N80b per month for 3,500MW of electricity, each of the 8m paying customers in the books of the Discos will need to pay an average of N10,000/month, while if the entire 20m users are brought into the payment basket each user will only pay an average of N4,000/month.
Currently each of the paying customers are only paying an average of N5,000 a month to make up the current N40billion collection.
The mechanism to achieve the above is a combination of customer enumeration using geographic information system (GIS) to trace electricity supply cables to each user and universal and compulsory metering of all customers. There is no retail business that involves collection of revenues based on usage or consumption that can be operated successfully without measuring equipment to determine the amount of consumption or purchase. Imagine operating a petrol fueling station with pumps working without meters where the operator would look at the type of vehicle driven into the station to determine how much to charge for filling the vehicle tank. That will open that business to all manner of fraud, extortion accounting overages and underages and evasion of payment. This is exactly what is happening in the electricity sector today.
To conduct a comprehensive GIS based customer enumeration across the country will cost about N20b. Luckily, many Discos have advanced with this and may require only about 50% of the N20b budget to complete the exercise. Beyond serving the purpose of the electricity sector, the outcome of the GIS programme will be useful to the Bureau of Statistics for use in national planning as well as provide the platform for developing a post code system for the nation since each building will now have a unique identity number which has overwhelming benefits.
With regard to metering this will entail installing meters for the 16m unmetered customers plus replacing about 50% of the 4m existing meters as most of the meters were installed over 10years ago with features that enable bypass thus bringing the metering requirement to about 18m meters.
At the average rate of N55,000 for single phase and three phase meters, the universal compulsory metering programme will cost about N990b to implement.
This is the amount the Discos were hitherto expected to fund from a monthly revenue base of N14b, which could hardly cover their overhead costs much less major capital expenditure as this. Notwithstanding the challenges, the Discos have installed about 2million meters over 5 years until the recent Meter Asset Provider (MAP) Programme, which has transferred payment obligation on meters to the customers.
However, given the daily hemorrhage of collection losses of about N1.3b; can the nation afford the luxury of allowing customers pay for meter acquisition at their own pace especially as the MAP programme tailored for extended repayment has failed because there is no long term fund for the MAP providers to tap into to provide long term repayment schemes. Worse still MAP providers can only access short term commercial loans at average of 18-20% to be passed on to the repayment program.
However, there exists different mechanisms to fund the universal compulsory metering programme which requires equivalent of $2.6b – less than 40% of Mambilla Hydro Power Plant funding requirement of $5.8b.
This includes borrowing from development funds targeted at electricity infrastructure which funds are currently available at Africa Development Bank (AfDB), AfriExim Bank, Africa Finance Corporation (AFC) etc. or floating a special bond by the Debt Management Office DMO or InfraCredit – subsidiary of Nigeria Sovereign Investment Agency (NSIA) with repayment from electricity customers who will have to either pay outrightly for the meters upon installation or have an extended repayment programme up to 10 years the life cycle of the bond. Deduction of an average of N500 per month on electricity recharge payment of a customer over 10 years will pay off the bond. This is a perfect product for investment by pension fund managers.
To meet the exigency of time, the CBN can provide immediate bridge finance of 50% of the N990b required for meter procurement and installation, while the process of bond issue or development bank credit is being finalized; which proceeds will be used to refinance the CBN bridge funds and meet the balance 50% funding requirement.
This way no customer will have any excuse not to have a meter and it shall become a criminal offense of electricity theft to be connected to electricity without a meter. In Thailand, it is a criminal offense punishable with a fine of equivalent of $3,000 to use electricity without being metered. To enforce compliance, a whistle blower gets $1,000 for any proven case of electricity theft. Thailand has maintained 5% aggregate technical and commercial losses for about 25years.
The attainment of 100% metering will change the outlook of the Nigerian electricity industry, liquify the industry and make it attractive for massive investments. When gas producers realize that they get paid for every cubic feet of gas they supply to Gencos, they will embark on exploration of more gas fields. When the Gencos realize that they get paid for every megawatt of electricity they supply to the Discos, they will strive to ramp up their capacity while new entrants will be scrambling to get into the market engendering competition that would result in lower retail tariffs. The TCN will now be able to attract funding to upgrade its network while the Discos will virtually be looking for power anywhere they could find it to meet their paying customers’ demand and increase their turnover as their overhead costs are to a large extent fixed so the more electricity they sell, the more profitable the business becomes. The question of load rejection will be gone, as the only reason a Disco will reject load is if the load is wheeled to feeders where it has low collection records i.e. higher losses.
Wonder why Siemens and the government of Germany gave Egypt €8b to develop 3 power plants of 4,800MW each yielding a total of 14,400MW, which were completed and commissioned in less than 18months while giving Nigeria that really needs massive investment in electricity a paltry sum of €250m(N109.2b) for which we are excited about when we could have attracted similar if not greater funds than the €8b for 14,40MW (compare with Mambilla $5.8billion for 3,000MW)? Simple. Egyptian electricity market has the liquidity that can support the funding.
The Nigerian electricity industry currently does not have the requisite liquidity to support any meaningful investment, which explains why no tangible investment has been witnessed in the industry since privatization seven years ago – about the same time 461MW Azura IPP transaction was concluded.
There’s no reason Nigeria cannot request Siemens and German government for similar €8b facility for 14,400MW the moment we activate the universal compulsory metering program so that the time the power plants are completed in 18months, the metering programme would have been completed or nearing completion using installation of 100,000 meters a month as parameter.
GE and the United States not to be outdone could leverage on the existing Power Africa fund to reactivate and expand the existing functional and non-functional NIPP plants.
Assembly and installation of 18m meters over 18months will employ about 50,000 skilled labour both at the meter plants and as meter installers, which more than ever is now needed given the economic impact of COVID-19.
Given the global ratio of electricity customer number to population size which is 1 electricity customer to 2 persons in developed economics and 1 electricity customer to 5 persons in 3rd word countries it will take the installation of 50m meters to attain the industry ratio with our present population of 203m. While Ghana’s ratio is 1 electricity customer to 6 persons, Nigeria is 1 electricity customer to 25 persons, Turkey is 1 electricity customer to 2 persons. With growth projections over the next 20 years one can imagine the robust potentials of electricity meter industry in Nigeria not to mention the untapped water meter industry.
Gas suppliers especially the International Oil Companies (IOCs) will be quite delighted to switch their resources to gas exploration with stable cash flows from the volatility of the crude oil market. A quantum leap to 25,000MW (from Siemens/Project and reactivation of the existing about 10,000MW thermal installed capacity) will require 5bscf of gas utilization a day.
Both the TCN and Discos will become the toast of lenders to fund their network improvement projects to support the increased supply. With improved power supply, cost of doing business in Nigeria becomes reduced drastically and thus position Nigeria as an extremely attractive manufacturing centre to service the West African market. Tourism will boom as the operating cost of hotels which is majorly from the power supply will be reduced tremendously. With the growth in manufacturing and tourism and attendant growth in other sectors, Nigeria’s horde of young population will become gainfully employed, the GDP will gallop, government revenues from taxes will get a boost. Indeed, the economy will effectively kick-off.
In conclusion, this piece has sought to establish that the bane of Nigeria electricity industry is not because of incompetence or lack of capacity of the operators and regulators at all levels. The primary cause is systemic illiquidity due to an extremely high rate of non-paying electricity consumers who are not customers.
To address this problem, universal and compulsory metering of all electricity consumers in Nigeria has been advocated with seamless funding mechanisms proposed. This singular programme has been shown to hold the key to unlock unprecedented investments in the electricity sector which will, in turn, unlock Nigeria’s rapid economic growth and development.
Kester Enwereonu is a lawyer and electricity industry stakeholder.