New power sector meter regime: Business Questions
Amidst the numerous interventions witnessed since the privatisation of the Nigerian power sector in 2013, the recent (March 2018) Meter Asset Provider (MAP) Regulation by NERC is notable for one reason; It is targeted at the last mile of the value chain which doubles as the revenue collection point for the preceding, problematic and connected stages; from gas supply to transformer installation.
The MAP regime as envisaged by the regulation appears promising on a cursory look, but there are several points and questions that should be robustly thought through by both the Distribution companies (Discos) and the potential Meter Asset Providers (MAPs). Although previous regulations such as the Metering Service Provider (MSP) regulation has provided some structure to the anticipated Disco-MAP relationship and has even created a pool of potential MAPs (though with multiple, distinct permits), the new MAP regulation is sufficiently distinct that there will be little or no economies of experience to leverage on both sides. The novelty, nascence and almost fluidity paint a business risk portrait that both Discos and MAPs should carefully study.
A notable fluid feature is that, unlike previous regulations from NERC, the MAP regulation gives DISCOs a lot of leeway in the regulatory requirement of engaging a Meter Asset Providers, which is both an opportunity and a risk for all stakeholders (compare with the Nigerian Mini Grid Regulation). For example, the Metering Service Agreement (MSA) and the Service Level Agreements (SLA) are two instruments that DISCOs and MAPs should use to govern their relationship. But their form and structure appears to be largely undefined, which is unsuitable for the complexity of this frontier (although NERC demands filing and eventual approval).
Strategically speaking; plugging the rampant, last mile revenue losses, through effective metering is a great step. But this step calls for a huge investment. Confirmed demand for about 5 million meters in the 11 Discos means an initial capital investment of about $400 million is needed, excluding meter installation and service costs, all of which would be amortised. Operating this segment of the sector will need a high level conversation on proper de-risking, financing and asset securitization.
Plugging-in a third party provider of meter assets and metering services introduces a whole new dimension and unique considerations to the electricity business in Nigeria. The DISCO-MAP relationship that now needs to be birthed and midwifed in Nigeria has inherent risks and opportunities, and its eventual form and terms would be as negotiated by each DISCO, which empties a bucket of related core business queries;
What are the best models for collecting metering service charge and their risks given wide rampant consumer apathy to payments and power theft proclivities?; What should form the core components of the Meter Service Agreement (MSA) and the Service Level Agreement (SLA) between Discos and MAPS in other to allocate risks to the parties best able to handle it?; What asset financing requirements should be factored into the MAP procurement bid process viz-a-viz the regulation’s required ring fencing of metering service charge?; What are the economic benefits of outright meter purchase by customers (to both Discos and MAPs) and how can it is incentivized?
Other questions include; The MAP regulation is silent on the Repair and Replacement terms for out rightly purchased meters (Non Amortised meters). What are the issues with MAPs – Customer engagements in this scenario and the concerns for revenue losses to Discos? ; Which of the parties in the NERC-Disco-MAP nexus has the obligation of monitoring Service Level Agreement (SLA) and Meter Service Agreement (MSA)? There is an apparent (unaddressed) opportunity to create and support a sharing economy between Discos and MAPs for potentially interwoven resources. What are the possible models and how can the Meter Service Agreement and the Service Level Agreement capture it? Disco can leverage existing physical resources to accrue economic benefits from the partnership; What are the best securitization options/partners available to Discos for complying with the securitization requirements of the MAP regulation?
The MAP regulation requires the procurement of MAPs to be concluded by the Discos, 120 days from April 03, 2018. The metering solution to the power crises in Nigeria has been birthed with promises of delivering much awaited relief to consumers, but the solution – evidently – has to scale and survive several business and political tests.
CHIJIOKE MAMA
Chijioke MAMA is CEO of MeiraCopp Nigeria Limited (MNL); a Transaction Advisory and Project Management Company and also a Doctoral Researcher in Business Management. m.chijioke@meiracopp.com