Nigeria: Metering - Sefton Fross Urges NERC, Others to Tackle Regulatory, Fiscal, Technical, Financial Problems

(file photo).
26 October 2020

Barely one year to its 2021 target, Sefton Fross, a Lagos-based energy law firm, has urged the Nigerian Electricity Regulatory Commission, NERC, to tackle the various problems currently affecting metering in the nation.

In the report - Meter Asset Provider Regulation: Taking stock two years after - obtained by Vanguard, - Seyi Alao and Oluwamayowa Daodu, associates in the firm, who noted some achievements, stated: "However, there is still much scepticism about the possibility of the achievement of its objectives before the December 31, 2021 timeline due to some of the challenges."

Regulatory challenges

Specifically, they stated: "The prices approved by Nigerian Electricity Regulatory Commission, NERC, for single-phase and three-phase meters under the MAP framework, are N36,991.50 and N67,055.85 respectively, two exclusives of the five per cent Value Added Tax (VAT).

"This uniform price was fixed by NERC without considering the different pricing assumptions by MAPs during the competitive procurement process nor the varying technical specifications for meters required by the Discos. Indeed, the current currency devaluation coupled with the 35 per cent increase in import duty may also have made the fixed meter prices unsustainable.

"The NERC capped the interest rate on meters supplied to customers at 21 per cent over a period of 10 years. This is against the background that the MAPs would rarely get access to long term financing for the project and loans are also priced at a high-interest rate, sometimes as much as 21 per cent. The implication of this for the MAP is a huge erosion of value."

Fiscal challenges

They stated: "In July 2019, the Ministry of Finance increased the import duties on electricity meters from 10 per cent to 45 per cent. This additional 35 per cent has negatively impacted the activities of the MAPs as it has increased the cost of doing business and affected the dynamics of their existing contracts such as financing and supply contracts. It has also thrown a log in the wheels of the possibility of closing the metering gap in the country within the scheduled timeframe.

"Nigerian seaports are rated as one of the most expensive to do business in the West African region 3, judging by the fact that imported cargoes, especially containerised ones, stay for longer days in port terminals before importers can obtain the needed authorisation to move the containers to their warehouses. With the outbreak of the Coronavirus and government's directives to curb the spread, the ports maintained skeletal activities."

Technical challenges

Continuing, they stated: "Whilst the regulation mandates the Discos to contract the MAPs for the provision of meters to the consumers, it did not specify the metering standards or the type of meters to be supplied by the MAPs. Thus, each Disco is at liberty to specify the design, engineering, manufacture, testing of the meters to be supplied by the MAPs.

With this variance, the MAPs are unable to benefit from the economies of scale that comes with purchasing uniform products in bulk as they must order different types of meter for each Disco they have a supply contract. One of the technical challenges being experienced by the MAP is the readiness of the meter end-users for installation of the meters."

Logistical challenges

According to them, "Under the regulation, MAPs are required to source for a minimum of 30 per cent of their contracted metering volumes from local meter manufacturing companies in Nigeria. This initiative was supposed to encourage local production of meters and generate revenue for the government, unfortunately, what exists mostly are local meter assembly companies, who import and assemble SKD meter parts.

"Due to the shortage in local meter manufacturing capacity, the MAPs have had to resort to importation from China, which is one of the major manufacturers of meters. The estimated average time frame for the importation is four months (excluding delays to clear the meter shipment in Nigeria).

"The COVID-19 pandemic has considerably slowed down activities in China, making it difficult for MAPs to import meters and this has adversely impacted on the availability of meters to end customers.

"Companies with meter assembly plants require permits and licenses from Standard Organisation of Nigeria (SON), NERC and NEMSA and other regulatory agencies. The timeframe for obtaining the required permits and licenses for the establishment of meter assembly plants takes at least six months to two years due to regulatory bottlenecks."

Financial challenges

They also stated: "Metering in Nigeria is highly capital intensive and the ability of the MAP to provide meters is dependent on the availability of adequate funding. The shortage of liquidity in the forex market coupled with the decline in oil price poses a serious challenge to the MAPs.

"With the outbreak of COVID-19, the situation is much more precarious for manufacturers and investors as they are faced with inadequate forex for importation, falling demand and naira devaluation that eroded their investments. Since the privatisation of the power sector, inadequate funding has been one of the major problems inhibiting the sector's growth."

Recommendations

The lawyers, who made strong cases for improved enforcement, additional incentives, including customs duty waiver for the importation of meters and ancillary equipment as well as low-interest loans, removal of administrative bottlenecks and public enlightenment, added: "Two years after the release of the guidelines, considerable progress has been made but it remains unlikely that the Regulation will achieve its target before the 2021 set date unless NERC and other stakeholders engage constructively to address the shortcomings."

Vanguard

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