Wrong pricing, bane of Nigeria’s electricity industry — NERC Commissioner

 


The Commissioner, Legal, Licensing and Compliance at the Nigerian Electricity Regulatory Commission, Dafe Akpeneye, says the power sector has not been able to stand due to wrong pricing. He spoke to Okechukwu Nnodim

How true is the claim that the NERC is considering winding down the Meter Asset Provider scheme?


I think it is important we give proper perspective. The MAP regulation was issued in 2018 and it set a basis for which independent meter provisions would be done for the power distribution companies through third parties called the Meter Asset Providers.



When the regulation was unveiled and the MAPs were engaged to start, they had contracted metering capacity, which then created an immediate demand for meters in the market, not on the customers side, but on the MAP side.


The immediate demand for meters couldn’t be met with our local capacity and the MAPs had to import. And in order to protect customers, the commission decided not to expose Nigerian customers to changing meter prices, because it goes into a regulated base. So what was done was that meetings were held with all the MAPs on the basis of the prices of their meters.



The commission then agreed what the maximum price of a meter would be. And on the basis of that price, the MAPs now did their modeling and placed orders for meters.


But unbeknownst to the commission and the MAPs, there was an increase in the import duty on meters. So we now had meter stock at the ports and the MAPs came and said to us, commission you want us to sell this meter at this price, but we didn’t factor in this duty that has gone up by 35 per cent.



So they couldn’t bring in meters and because of the pricing and the increased duty, which now cuts into their margins, there was no incentive to place orders. Even the local manufacturers who manufacture meters in Nigeria, their components were also affected by that increase in duty.


So the commission had to engage the appropriate arms of government, leading to the directive of the President waiving that 35 per cent and ordering a mass metering programme. The President also directed the Central Bank of Nigeria to support with financing. So the issue of metering is a problem that government recognises and is committed to solving it.



When are we going to start seeing the mass meter deployment?


Meters are products sold in the market. Where the right indices meet – demand, supply, pricing; and the right factors are in place, you will start to see the meters. Nigerians are very entrepreneurial and so once the right factors are there, people will enter this space and will provide the product. We just highlighted the factors that made the business environment challenging for sale and release of meters to the market. These challenges and bottlenecks have been taken out and now you are going to see that orders will be made because the market is there on an Africa-wide basis. Nigeria has the largest market for meters but people will only sell at a price because it is a business. So with what has been done now and what is being done with the Ministry of Finance and other arms of government, we will start to see orders being placed.



Therefore with these measures in place, in this last quarter that we are in now and the beginning of first quarter of 2021, we will start to see a lot of meters coming in.


But even before the meters, we had issued the capping order, which looks at all the customers and places a maximum load that the Discos can say you consumed. This means that for unmetered customers, there is a maximum amount that the Discos can charge you. And if the Disco believes that a particular customer consumes more than 800kWH a month, it will ask that the metering of that customer’s residence should be prioritised.



So it creates a kind of parity whereby unmetered customers are no longer bearing the brunt and everybody now pays for what they consume. Now, because everybody cannot be metered at the same time, even if you haven’t got a meter, what you are paying will be comparable to what your neighbour is paying. So the customer protection element is there.


Who do I approach for a meter?


You would have noticed that the commission has started a very engaging customer and public enlightenment campaign. The first of these was that all Discos, on Mondays and Tuesdays newspapers, should publish the locations of the various bands. The next item would be that the Discos must publish the process for the application of a meter. They must first of all publish who the MAPs are. Some of them have already started engaging their customers through various communication channels.



 

There is the complain that Discos do not have capacity to invest in the power sector. How true is this and how can it be corrected if it is true?


Nobody does any big business with his personal money. People borrow from banks. You have lenders. And so there are two ways you fund a business. It could be through shareholders funds or equity, while the other is funding from financial institutions. And in addressing that funding, there is usually a debt to equity ratio stating the amount of money the shareholders should provide and the amount of money you should get from your bank. Now once you do all of these, that money must be repaid and it is repaid from the business you’ve been engaged to do. So, investments in the power sector were made at the generation and distribution levels. But it is at the the distribution level that you have a direct engagement with the customers. And if you go back to where we talked about the pricing of the product, you will now see that you have a situation where people have got money to do a business. And the cost of the product they produce is N15, but they are selling that product for N8. What now happens is that you are not going to be able to get sufficient funds. Remember, nobody does business to operate at a loss.



Also, you need to bring in additional funding into that business. You sit down with a bank and the bank looks at the projection and says first of all, the loan you took from me, you’ve not fully repaid. And the bank says again that in the price of this product, I do not see a trend of how you will repay me. So you have a financial problem, which was why the government had to intervene. The intervention was because of the liquidity crisis. The industry has not been able to stand on its own because the pricing hasn’t been right. And if the pricing was right, have you seen other investors coming in, knocking the door to invest in the Nigerian distribution sub-sector? Everybody looks at the pricing and they will say no, we can’t get our monies back because the pricing isn’t right.



How is the power sector regulator addressing this?


In getting the pricing right, with just this announcement of service reflective tariff that we’ve done, it has spurred interest in the Nigerian power sector and people are looking to come in to invest in different aspects. This is because investment follows certainty. Nobody will invest where he is going to make a loss. But where you can do your projections and see that there is a return, people will invest. So I don’t think this matter has anything to do with personalities, it is just pure economics and it is the same economics that applies to every business. We saw it in the telecoms sector where we bought SIMs for N60,000, we paid for airtime at N50 a minute, not even per second. That was because there was no per second billing then and so we paid N50 per minute. What did all of these do? They enabled the telcos to build infrastructure.



In 2004/2005 MTN was the largest buyer of diesel in Nigeria. MTN is not into the diesel business, but into telecommunications. However, to do telecommunications you have to build base stations and for those base stations, you have to run them and their main source of power supply for their generators was diesel. So the same principles apply to our sector as well. With the right investments, you will start to have improvements. And after things improve and people make the right payments, the price will drop.



There is this argument, between pricing and investments, which one comes first?


I’ll go back to what I told you earlier, the issue is that price drives investment. And when you attain the appropriate level of investments and achieve the economies of scale, price starts to come down. And you see in every sector this happens; it happened in telecoms. Today I don’t think you know how much it costs you to make a call per minute. You don’t know! The only cost you know now is your data cost for the data bundle that you pay for. You don’t know how much you pay per minute. But at a time we all knew that it was N50 per minute. But because of the competition and the level of investments and the saturation of that investments the pricing has dropped.



There is a level of investment that is required in this sector. We’ve not closed the loop on the grid, as in we’ve not connected point A round the country for the transmission grid to go round. And there are many Nigerians who are not even connected to the grid. We need to bring this people on to the grid. If it is expensive to bring these people to the grid, let them have solar home systems. Let them have things that will make them enjoy the benefits of electricity. So you will make an investment, but the level of investment you are going to make is driven by the price. And this is because it is the customers who are the ones to sustain the business.

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